Daxko, LLC and Diamond Parent LP v. Benjamin Timm

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

DAXCO, LLC and DIAMOND )
PARENT, LP, )
)
Plaintiffs, )
)
v. ) C.A. No. 2025-0942-DH
)
BENJAMIN TIMM, )
)
Defendant. )
)
)
)
)

REPORT

Report: January 22, 2026
Date Submitted: November 24, 2025

Stephen B. Brauerman, Justin C. Barrett, BAYARD, P.A., Wilmington, Delaware;
Jonathan C. Hill, Benn C. Wilson, BRADLEY ARANT BOULT CUMMINGS LLP,
Montgomery, Alabama; Attorneys for Plaintiffs Daxco, LLC and Diamond Parent
LP.

Andrea S. Brooks, WILKS LAW, LLC Wilmington, Delaware; Attorney for
Defendant Benjamin Timm.
HUME, IV, M.

Today, the Court yet again confronts two stubborn interests: Delaware’s

contractarian commitment to private ordering, and Delaware’s disfavor of restraints

on trade. Over the last decade, this Court has articulated its reluctance to

automatically enforce agreements not to compete, particularly arising out of the

employer-employee context. This case exemplifies the public policy interests

buttressing such disfavor.

Over the course of several years, Defendant employee worked his way up to

a management position overseeing sales for one of Plaintiff company’s business

lines. Defendant’s vocational success resulted in the company granting him a profits

interest in the larger entity structure, subject to vesting requirements and other

contingencies usual in such arrangements. In consideration for the profits interest,

the company required the employee to sign a restrictive covenant not to compete,

thereby protecting myriad lines of the entity’s international operations. Although

the company has every right to protect proprietary information and impose

reasonable restrictions that prevent an employee from directly competing with his

former employer, the present restrictions are far too broad and vague. As a result, I

hold that the non-competition agreement is unenforceable and grant Plaintiff’s

motion to dismiss. This is my final report.

2
I. BACKGROUND

Unless otherwise noted, the Court takes the following facts from Plaintiffs’

Verified Amended Complaint (“Amended Complaint”) and the documents it

incorporates by reference.1

A. Facts
1. Daxco’s Entity Structure

Daxco, LLC (“Daxco”) is an Alabama LLC that provides software platforms

to gyms and wellness businesses.2 Daxco’s parent company, Diamond Parent LP

(“Diamond Parent”), is a Delaware LP with its principal place of business in

Birmingham, Alabama. 3 Daxco has one member, Daxco Acquisition Corporation

(“Daxco Acquisition”), which is organized under Delaware law. 4 Daxco

Acquisition has no employees and functions as an “acquisition vehicle” for the

greater Daxco organization. 5 The greater Daxco entity structure is complex,

containing multiple subsidiaries. Daxco Acquisition owns Motionsoft, Inc.

(“Motionsoft”), which provides member management and payment processors for

1
Verified Am. Compl. for Injunctive Relief and Damages [hereinafter Am. Compl.], D.I.
26.
2
Am. Compl., ¶¶ 9, 15.
3
Id., ¶ 10.
4
Id., ¶ 16.
5
Id.
3
fitness facilities. 6 Motionsoft in turn owns Conexion Club Management Solutions,

Inc., a Canadian Corporation.7 Daxco Acquisition also owns Daxco India

Technology Solutions, Private, LTD (“Daxco India”), which employs approximately

210 software developers and database administrators who support the broader Daxco

software products.8 Daxco Parent Corporation is a Delaware Corporation that owns

Daxco Acquisition. 9

2. Daxco’s Product Lines
Daxco provides technology to health and wellness organizations.10 Daxco

organizes its target markets by segments: (1) the small and medium business market

(SMB), such as martial arts and functional fitness gyms; (2) large nonprofit

enterprises, such as the YMCA and Jewish Community Centers; and (3) the

enterprise for-profit market, which includes large franchise models and multi-

purpose athletic clubs.11 The SMB segment markets two particular products. Zen

6
Id., ¶ 17.
7
Id., ¶ 18.
8
Id., ¶ 19.
9
Id., ¶ 20. To bring the business structure full circle, Diamond Midco LP (a Delaware
partnership) owns Daxco Parent Corporation. Id., ¶ 21. Diamond Midco LP has one
partner, Diamond Parent LP and Diamond Parent LP’s sole partner is GI Diamond
Holdings LP. Id., ¶¶ 22–23. Daxco Parent Corporation, Diamond Midco LP, and GI
Diamond Holdings LP all have no employees. Id.
10
Id., ¶ 14.
11
Id., ¶¶ 26, 29.
4
Planner provides member management services to wellness businesses.12

SugarWOD predominates the functional fitness market and permits gym members

to track their workouts and share results with fellow gymgoers. 13

Daxco considers its software products proprietary and zealously guards its

business strategy and internal analysis of the relative strengths and weaknesses of its

products.14

3. Timm’s Employment with Daxco
In February 2019, Uplaunch hired Timm. Daxco acquired Uplaunch the

following year, resulting in Timm’s employment with Daxco as a Digital Marketing

Product Specialist. Over the following five years, Timm proceeded to work his way

up the ranks at Daxco. In his first role as Digital Marketing Product Specialist, Timm

marketed Zen Planner. In 2022, Daxco promoted Timm to Director of Boutique

Sales. In this role, Timm directed Zen Planner’s worldwide sales and was privy to

senior leadership discussions concerning marketing and financial strategy. 15 Daxco

considers the content shared at such senior leadership meetings to be “sensitive,

12
Id., ¶ 26. Notably, Daxco targeted the CrossFit market with its ZenPlanner and
SugarWOD products. Id. at ¶¶ 26-27.
13
Id., ¶ 27.
14
See id., ¶ 30.
15
Id.
5
confidential, and proprietary.”16 Following Timm’s promotion to Director,

however, Daxco did not require Timm to agree to any non-compete or non-

solicitation provisions.

Two years later, Daxco promoted Timm again, now to Vice President of SMB

sales.17 In this role, as in the director position, Timm maintained access to senior

leadership meetings, including any confidential discussions of mergers and

acquisitions. 18 In compensation for his VP position, Daxco paid Timm an annual

salary of $130,000 with eligibility to receive bonuses.19

a. Daxco awards Timm a Profits Interest.

As additional compensation for his promotion to Vice President, Daxco

awarded Timm a profits interest in Daxco via the Class P Unit Award Agreement

(“Award Agreement”). 20 The agreement conferred 150,000 Class P Units to Timm

contingent upon certain vesting requirements. Over the course of five years, 10% of

the award would vest in annual tranches, meaning that if Timm remained at Daxco

16
Id.
17
Id., ¶ 31.
18
Id., ¶ 32.
19
Def.’s Opening Br. in support of his Mot. to Dismiss [hereinafter Def.’s Opening Br.],
4, D.I. 31.
20
Am. Compl. ¶ 33.
6
for five years, he could be certain that 50% of the Units would vest.21 The remaining

50% would only vest in the event of a sale, and the degree to which these units would

vest depended on valuation benchmarks met in the sale of the entity.22

To receive the Class P Units, Timm signed the Award Agreement, which

contained as an Exhibit the Restrictive Covenant Agreement (“RCA” or “non-

compete”).23 Section 3(a) of the RCA defines the scope of Timm’s non-compete:

During the Participant’s Engagement and during the twenty-four (24)-
month period immediately following termination of the Participant’s
Engagement, regardless of the reason therefor . . . the Participant will
not (and will cause the Participant’s Affiliates not to), directly or
indirectly, whether as owner, partner, investor, consultant, agent,
employee, co-venturer or otherwise, engage in, render services for or
compete with, or undertake any planning to engage in or compete with,
all or any portion of any business conducted or planned to be conducted
by Employer or any of its Affiliates (or that is similar, related to or
competitive with any such business) at any time during the Participant’s
Engagement or, with respect to the portion of the Non-Compete Period
that follows the termination of the Participant’s Engagement, at any
time within the twenty-four (24)-month period immediately preceding
such termination, in any geographic area in which Employer or any of
its Affiliates does business at any time during the Participant’s
Engagement or, with respect to the portion of the Non-Compete Period

21
Id., Ex. 1, § 3(a). The Award Agreement named the annually vested tranches “TVUs.”
Id. In the case of a sale prior to the expiration of five years, the vesting would accelerate
and Timm would receive all unvested TVUs (i.e., what remains of the 50%). Id.
22
Id. Ex. 1, § 3(b). The Award Agreement named these contingently vested units “PVUs.”
Id. The PVUs would only vest upon sale of Diamond Parent LP. Id. In connection with
a sale, if the MOIC (Multiple On Invested Capital) was at least 2.5x, then Timm would
receive 50% of the PVUs (25% of the total units), whereas if the MOIC met or exceeded
3.0x, then all the PVUs would vest. Id.
23
Id., ¶¶ 35–36, Ex. 1 at 12.
7
that follows the termination of the Participant’s Engagement, at any
time within the twenty-four (24)-month period immediately preceding
such termination, including, without in any way limiting the foregoing,
any business or venture that, directly or indirectly, creates, develops, or
provides integrated member management and payment processing
Software as a Service solution to customers in the health and wellness
industry, including fitness centers, boutique wellness studios and non-
profit health and community centers, or otherwise competes with the
business of the Employer, the Partnership and/or any of their respective
Affiliates, as conducted as of the applicable date and in the United
States, Canada, the rest of North America, the United Kingdom,
Australia, New Zealand or the rest of the world. 24

The RCA prohibits Timm from gaining employment with any entity that “directly

or indirectly” provides Software as a Service (“Saas”) products in the health and

wellness industry.25 The non-compete is effective for two years following the

termination of Timm’s employment. Further, for any period that Daxco considered

Timm in breach of the RCA, the non-compete time period would toll until the breach

ceased.26 Section 3(a) delineates the geographic scope of the non-compete to any

region where Daxco or its affiliates do business.

The RCA further provided a “blue-pencil” provision where in the event a court

held the RCA unenforceable due to temporal or geographic overbreadth, the RCA

would remain enforceable to its newly narrowed scope:

24
Id. Ex. 1, at Ex. A, § 3(a).
25
See id., ¶ 38.
26
Id., Ex. 1., at Ex. A, § 4(d).
8
[I]n the event that any provision of this Agreement is determined by any
court of competent jurisdiction to be unenforceable by reason of its
being extended over too great a time, too large a geographic area or too
great a range of activities, that provision shall be deemed to be modified
to permit its enforcement to the maximum extent permitted by law.27

“Affiliates” is a defined term in the RCA: “all persons and entities directly or

indirectly controlling, controlled by or under common control with such Person,

where control may be by management authority, equity interest or otherwise.” Thus,

the RCA prohibits employment with any competitors of Daxco in addition to those

of Motionsoft, Conexion Club, Daxco India, and any other entities under the control

of Diamond Parent LP.

Section 5 of the Award Agreement permits Diamond Parent LP/Daxco to

recover all payments made for repurchase of the Class P Units should Timm violate

the RCA.

In the event that the Participant breaches any non-competition . . .
Restrictive Covenants, . . . in any case whether during or following the
Participant’s Engagement, the Participant’s Engagement will be
deemed to have been terminated for Cause, including retroactively with
respect to prior repurchases of vested Class P Units . . . and, in addition
to all other remedies available by law or in equity, the Partnership will
have the right to recover all payments made with respect to such
repurchases or otherwise in respect of the Class P Units.28

27
Id., Ex. 1, § 4(c).
28
Id., Ex. 1, § 5.
9
When signing the agreement, Timm agreed to contractual provisions stating

that Timm had “become personally familiar with the business” of Diamond Parent

and its affiliates, 29 the opportunity to ask Diamond Parent’s representatives

questions about the terms of the Award Agreement,30 and “reasonable opportunity”

to consult with financial and legal advisors about the consequences of the Award

Agreement. 31

b. Timm departs Daxco.
One year after his promotion to Vice President and receipt of the Class P

Units, Timm informed Daxco of his intention to leave the company.32 Prior to

formally submitting his resignation, Timm consulted with his Daxco superiors about

possible landing spots, to avoid enforcement of the non-compete. 33 Of four possible

job opportunities, Daxco executives orally waived objection to Timm’s employ at

three locations, while maintaining that should Timm accept employment at the

fourth, they would seek to enforce the RCA. 34 Daxco executives couched their

29
Id., Ex. 1, § 7(b).
30
Id., Ex. 1, § 7(c).
31
Id., Ex. 1, § 25(b).
32
Id., ¶¶ 51–52.
33
Id., ¶¶ 52–53.
Id., ¶ 53. Daxco’s complaint does not state whether employment at any of the companies
34

would have violated the RCA’s terms. Under Section 6(b) of the RCA, Diamond Parent

10
waiver on the continued lack of direct competition by the three acceptable

companies.35

Several days later, Timm informed Daxco of two other employment

opportunities. The executives deemed one acceptable and the other violative of the

RCA.36 Finally, Timm identified eGym, a workout equipment and software

supplier, as an employment opportunity. 37 Again, Daxco orally waived objection to

Timm’s employment there. Soon following, Timm resigned from Daxco and began

working at eGym.38

Several months after Timm left Daxco, Diamond Parent LP exercised its

contractual option to repurchase Timm’s Class P Units.39 Because approximately

LP could only waive breach “agreed to in writing by the non-breaching party.” Id., Ex. A.,
at Ex. 1. In their complaint, plaintiffs state that Daxco “verbally waived” objection to
Timm’s employment with certain businesses. Id., ¶ 53. At the TRO hearing, however,
Daxco’s attorney clarified that the waiver was oral. TRO Tr., 6:9-12. Thus, the Daxco
executives’ oral waiver did not legally waive a breach but rather signified probable non-
enforcement of the RCA. See id. at 7:2-5.
35
Am. Compl. ¶ 53.
36
Id., ¶ 54.
37
Id., ¶ 55.
38
Id., ¶¶ 55–56.
39
Id., ¶ 33; see id., Ex. 1, § 4(c). Daxco repurchased the vested units, whereas the unvested
units “automatically terminate[d and were] cancelled.” Id. at § 4(a).
11
10% of the Class P Units had vested after one year, Daxco made a repurchase

payment of $52,241.00.40

4. Daxco learns Timm has left eGym and commenced
employment at Wodify.

Sometime between April and August 2025, Timm departed eGym and began

working at Wodify Technologies, LLC (“Wodify”), a technology company

providing software to boutique gyms. 41 Much like Daxco, Wodify provides SaaS

products, including “payment processing, website services, mobile apps, digital

marketing” and other member management services.42

In August 2025, Daxco employees attended the CrossFit Games in Albany,

New York to staff a booth marketing ZenPlanner and SugarWOD.43 The CrossFit

Games provide a marquee sales and marketing opportunity to companies offering

products in the boutique functional fitness domain. 44 Daxco employees spotted

Timm at the games wearing a Wodify branded t-shirt and working at the Wodify

40
Id., ¶ 33. Timm signed the Award Agreement on December 15, 2023, and his
employment with Daxco ended “in and around April 2025.” Id., ¶¶ 35, 56. Because the
TVUs vest in annual tranches, only 20% of the TVUs (10% of all outstanding Class P
Units) would have vested during Timm’s tenure as VP at Daxco. See id., Ex. 1, § 3(a).
41
Id., ¶¶ 56, 60.
42
Id., ¶¶ 61–62.
43
Id., ¶ 58.
44
See generally Morning Chalk Up, Sneak Peek at the 2025 CrossFit Games Experience,
BARBEND (Apr. 8, 2025), https://morningchalkup.barbend.com/p/sneak-peek-at-the-2025-
crossfit-games-experience.
12
booth.45 Daxco later found a Wodify Instagram post with Wodify employees,

including Timm.46 Daxco had been previously unaware of Timm’s new employment

with Wodify.47

5. Daxco informs Timm that he has breached the Award
Agreement and seeks remedies.
Three days after the 2025 CrossFit Games, Daxco informed Timm that his

employment with Wodify breached the RCA and that Daxco would seek return of

the $52,241.00 repurchase payment for the Class P Units pursuant to Section 5 of

the Award Agreement. 48

In addition to seeking return of the repurchase payment, Daxco also demanded

that Timm resign from Wodify “or from any other relationship with Wodify that

would violate” the RCA and Award Agreements. 49 In response to the demand,

Timm’s counsel represented that Timm would not disclose any of Daxco’s

proprietary information to Wodify or other third parties.50 Not satisfied with Timm’s

assurances, Daxco alerted Timm that it would seek to enforce the Award Agreement

45
Id., ¶ 58.
46
Id., ¶ 59.
47
Id., ¶ 63.
48
Id.
49
Id., ¶ 66.
50
Id., ¶ 69.
13
and RCA.51 The parties being unable to resolve the dispute privately, Daxco and

Diamond Parent LP brought suit before this Court. 52

B. Procedural History

Daxco and Diamond Parent LP (together, “the entities”) filed suit on August

21, 2025.53 Alongside their complaint, the entities sought a Temporary Restraining

Order and Expedited Proceedings.54 The matter was initially assigned to Vice

Chancellor Fioravanti. On August 28, 2025, Vice Chancellor Fioravanti heard oral

argument on the two motions. The Vice Chancellor denied the Temporary

Restraining Order and granted the Motion to Expedite Proceedings. 55 Soon

following, Timm filed a Motion to Dismiss for failure to state a claim under Rule

12(b)(6).56 In the interim, the entities filed a motion for a preliminary injunction,

which Vice Chancellor Fioravanti denied without hearing argument. 57 After the

51
Id., ¶¶ 70–71.
52
See id..
53
Verified Compl. for Injunctive Relief and Damages, D.I. 1.
54
See Pls.’ Mot. for Temporary Restraining Order, D.I. 1; Pls.’ Mot. to Expedite
Proceedings, D.I. 1.
55
D.I. 15–16.
56
Def.’s Mot. to Dismiss Pl.’s Verified Compl., D.I. 21.
57
D.I. 25.
14
plaintiffs filed their Amended Complaint, 58 the matter was reassigned to me. 59 On

November 24, 2025, I heard oral argument on Timm’s 12(b)(6) motion and took the

matter under advisement.60

II. ANALYSIS

Timm has moved to dismiss the Amended Complaint under Court of

Chancery Rule 12(b)(6) for failure to state a claim upon which relief can be

granted.61 The standard for a Rule 12(b)(6) motion is well known to the parties: “(i)

all well-pleaded factual allegations are accepted as true; (ii) even vague allegations

are well-pleaded if they give the opposing party notice of the claim; (iii) the Court

must draw all reasonable inferences in favor of the non-moving party; and (iv)

dismissal is inappropriate unless the plaintiff would not be entitled to recover under

any reasonably conceivable set of circumstances susceptible of proof.” Savor, Inc.

v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (internal citations omitted). The

reasonable conceivability standard does not obligate the Court “to accept every

strained interpretation of the [plaintiff’s] allegations.” In re General Motors

58
D.I. 26.
59
D.I. 30.
60
D.I. 37.
61
D.I. 31.
15
(Hughes) Shareholder Litigation, 897 A.2d 162, 168 (Del. 2006) (quoting Malpiede

v. Townson, 780 A.2d 1075, 1083 (Del. 2001)).

The Amended Complaint contains two counts, both sounding in breach of

contract. Count I seeks legal damages as relief, whereas Count II seeks injunctive

relief. 62 For the reasons expounded below, I dismiss both counts.

A. The Restrictive Covenant Agreement is Unenforceable as a Matter
of Law.

Both the counts for damages and injunctive relief are dismissed because the

underlying contract is unenforceable under Delaware law. Timm raises several

arguments in support of his 12(b)(6) motion, including that (1) the RCA is overbroad

in terms of geographic and temporal scope, (2) the RCA fails to advance a legitimate

interest of Daxco and its affiliates, (3) the RCA protects business lines into which

Daxco and its affiliates have not entered, and (4) the balance of the equities disfavors

enforcing the RCA against Timm.63

This Court “closely scrutinize[s]” restrictive covenants because they are

“restrictive of trade.” Faw, Casson & Co. v. Cranston, 375 A.2d 463, 466 (Del. Ch.

1977); see Sunder Energy, LLC v. Jackson, 305 A.3d 723, 752–53 (Del. Ch. 2023)

(“Delaware courts do not mechanically enforce restrictive covenants; instead, they

62
Am. Compl., ¶¶ 73–84.
63
See generally Def.’s Opening Br.
16
are closely scrutinized.”) (internal citations omitted), rev’d on other grounds, 332

A.3d 472 (Del. 2024). The Court will uphold a restrictive covenant only when the

following three factors are met: (1) It is “reasonable in geographic scope and

temporal duration”; (2) the RCA “advance[s] a legitimate economic interest of the

party seeking its enforcement”; and (3) the RCA “survives a balancing of the

equities.” FP UC Holdings, LLC v. Hamilton, 2020 WL 1492783, at *6 (Del. Ch.

Mar. 27, 2020) (quoting Lyons Ins. Agency, Inc. v. Wilson, 2018 WL 4677606, at *5

(Del. Ch. Sep. 28, 2018)). Because restrictive covenants necessarily infringe on a

party’s liberty to engage in trade, the Court “take[s] into account the public interest

in competition, the need for individuals to be able to earn a living, and the imbalances

in bargaining power and repeat-power player experience that exist between

businesses and individuals.” Sunder Energy, LLC, 305 A.3d at 753 (citing Elite

Cleaning Co., Inc. v. Capel, 2006 WL 1565161, at *4 (Del. Ch. June 2, 2006).64

1. The RCA’s geographic scope and temporal duration is
overbroad.
Timm first argues that the geographic scope and temporal duration of the

RCA exceeds the limits of what this Court has enforced. I must consider how the

64
As the Court noted in Sunder, these imbalance of power factors weigh more heavily
where the employee is less sophisticated, and the entity retains the balance of power. 305
A.3d at 753 n.66. The Court considers, though does not accord dispositive weight, to the
ability of both parties to bargain for and potentially exact concessions in executing an RCA.
17
breadth and length of the RCA operate together because “[t]he two dimensions

necessarily interact.” Del. Elevator, Inc. v. Williams, 2011 WL 1005181, at *8 (Del.

Ch. Mar. 16, 2011). Ultimately, “the reasonableness of a covenant’s scope is not

determined by reference to physical distances” but instead “the area in which a

covenantee has an interest the covenants are designed to protect.” Weichert Co. of

Pa. v. Young, 2007 WL 4372823, at *3 (Del. Ch. Dec. 7, 2007).

a. Delaware law subjects non-competes executed in the
employer-employee context to heightened scrutiny.

This Court analyzes restrictive covenants under one of two regimes. In the

sale of the business context, the RCA “must be tailored to the competitive space

reached by the seller and serve the buyer’s legitimate economic interests.” Intertek

Testing Services NA, Inc. v. Eastman, 2023 WL 2544236, at *4 (Del. Ch. Mar. 16,

2023) (citing FP UC Holdings, LLC, 2020 WL 1492783, at *7)). This standard is

based on the relatively equal negotiating positions between buyer and seller and the

sales context where both sides are contemplating conditions of the transaction.

Where the RCA accompanies the sale of a business, this Court undertakes a less

scrutinizing analysis. See Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210 at *19–20

(Del. Ch. July 22, 2015) (enforcing a five-year non-compete encompassing twenty-

three states in the sale of a business context); cf. Cleveland Integrity Services, LLC

v. Byers, 2025 WL 658369, at *10 (Del. Ch. Feb. 28, 2025) (denying a preliminary

18
injunction to enforce a two-year continent-wide non-compete because it is “facially

broader than necessary to protect Plaintiff’s U.S. business interests.”).

Outside of the sale of a business context, however, the Court undertakes a

more searching inquiry. Rather than “tick through individual features of a restriction

in isolation,” the Court will consider the RCA “synergistically.” Sunder Energy,

LLC, 305 A.3d at 753. Under this more scrutinizing regime, the Court has declined

to enforce non-competes as short as two years and a scope as small as 100 miles,

due to the lack of reasonableness and proportionality in their restrictions. See Hub

Group, Inc. v. Knoll, 2024 WL 3453863, at *8–9 (Del. Ch. July 18, 2024) (declining

to enforce a one-year geographically ambiguous non-compete); Centurion Service

Group, LLC v. Wilensky, 2023 WL 5624156, at *5 (Del. Ch. Aug. 31, 2023)

(declining to enforce a nationwide non-compete). The Court carefully examines the

consideration received by the employee in exchange for executing the restrictive

covenants. Where the consideration is substantial, as in the sale of a business

context, a longer and larger scope seems justified, whereas minimal consideration

cannot support a broad non-compete. See, e.g., Centurion Service Group, 2023 WL

5624156, at *5 (declining to enforce a nationwide non-compete because of minimal

consideration where the employee was already employed at the time of signing the

RCA).

19
b. The non-compete is unenforceable because it seeks to
protect the economic interests of Diamond Parent’s
Affiliates.
The Court enforces a non-compete only where its scope is closely tailored to

the employee’s role within the entity. See Hub Group, 2024 WL 3453863, at *11

(declining to enforce a non-compete where its scope was not limited to the

employee’s “identical responsibilities.”). Delaware permits restrictive covenants

only where the enforcing entity has a “strong economic interest.” Centurion Service

Group, 2023 WL 5624156, at *5. While an entity has a strong economic interest in

newly acquired assets and information obtained in the sale of a business, no such

economic interest in affiliates exists in the employer-employee context. See Kodiak

Building Partners, LLC v. Adams, 2022 WL 5240507, at *8 (Del. Ch. Oct. 6, 2022)

(noting economic interests in “protection of employer goodwill and protection of

employer confidential information from misuse.”) (internal quotation omitted);

Fortiline, Inc. v. McCall, 2024 WL 4088629, at *4 (Del. Ch. Sep. 5, 2024) (“A

covenant including the employer’s affiliates is ‘not tailored to [the employee’s] role

while employed,’ and the inclusion of affiliates in different sectors and different

countries is ‘not essential to the protection of [the employer’s] legitimate business

functions.”) (quoting Hub Group, 2024 WL 3453863, at *9).

Daxco’s non-competition provision explicitly seeks to protect the interests of

Diamond Parent’s Affiliates. Section 3(a) prevents Timm from competing with “all

20
or any portion of any business conducted or planned to be conducted by . . . any of

[the Employer’s] Affiliates,” and the geographic scope of the covenant encompasses

the business of the Employer’s Affiliates anywhere in the world.65

Because the non-compete arose in the employer-employee context and the

entity seeks to protect the economic interest of both Daxco and its affiliates, the

language of the covenant falls squarely within the scope proscribed in Fortiline.

Daxco has no strong economic policy interest in protecting its affiliates from

competition with Timm, considering that the complaint never alleges Timm

conducted work outside of Daxco’s SMB line. This Court has repeatedly struck

down such overbroad protective interests and does so again.

The temporal duration of the RCA coupled with its global scope is

unreasonable. Under the terms of the RCA, Timm cannot “engage in, render

services for or compete with . . . all or any portion of any business conducted or

planned to be conducted by Employer or any of its Affiliates” for two years “in any

geographic area in which Employer or any of its Affiliates does business at any time

during [Timm’s] Engagement” or during the two years following the termination of

Timm’s employment.66 Daxco enumerates a non-exhaustive list of what it considers

65
Am Compl. Ex. 1, at Ex. A, § 3(a).
66
Id.
21
its areas of business operations: “any business or venture that . . . creates, develops

or provides integrated member management and payment processing Software as a

Service solution to customers in the health and wellness industry . . . .” 67 In short,

Timm cannot work for any entity that provides member management software in a

region where Daxco currently has or plans to service clients. The non-compete

provision is not tailored to the scope of Timm’s work for Daxco managing the SMB

line. Because the RCA prohibits Timm from “engag[ing] in” or “render[ing]

services for” any actual or prospective competitor, the contractual language prohibits

Timm from working at a company providing software to gyms in at least sixty-eight

countries, even where his role is unrelated to SaaS sales.

The entities contend that the global reach of the RCA is reasonable because

Daxco’s business is global. Furthermore, the scope of the RCA (sixty-eight

companies) is directly tied to where Daxco claims to have recently conducted

business. Putting aside, briefly, the regions where Daxco’s affiliates conduct

business, Daxco paints with too broad a brush its geographic reach. Admittedly,

Daxco pleads that its “clients comprise over 10,000 facilities and 20 million

members spanning 68 countries.” 68 Daxco’s clients are, however, gyms and

67
Id.
68
Id., ¶ 15.
22
recreational facilities. Daxco provides SaaS to myriad boutique, non-profit, and

franchised gyms. Under Daxco’s argument, the RCA precludes Timm from working

in geographic proximity to any gym that uses one of Daxco’s products.

2. The RCA fails to adequately describe its scope.
The geographic scope of a non-compete must be congruous with the scope of

the entity’s operations. See Intertek Testing Services NA, Inc. v. Eastman, 2023 WL

2544236, at *4 (Del. Ch. Mar. 16, 2023). In determining congruity, the Court does

not demand a “perfect match” between the scope of the restrictive covenant and the

entity’s operations, but the entity must have “a legitimate business interest in the

protected area.” Cleveland Integrity Services v. Byers, 2025 WL 658369, at *10–11

(Del. Ch. Feb. 28, 2025). As part of protecting its economic interest, this Court

expects the RCA to describe with reasonable specificity the entity’s lines of business

and where they operate. See, e.g., Payscale Inc. v. Norman, 2025 WL 1622341, at

*6 (Del. Ch. June 9, 2025) (“The Noncompete does not describe the lines of business

in which any of those entities operate, rendering the provision unreasonably

vague.”). Where a non-compete protects both the employer and the employer’s

affiliates, the employer must justify the “broader legitimate economic interest” and

demonstrate that the employee had actual knowledge of the other affiliates’ scope of

operations. Eagle Infrastructure Super Holdco, LLC v. Harmon, 2024 WL 5103919,

at *3 (Del. Ch. Dec. 12, 2024); see Ainslie v. Cantor Fitzgerald, L.P., 2023 WL

23
106924, at *18 (Del. Ch. Jan. 4, 2023) (noting concerns that an RCA protecting

affiliates might result in “a partner . . . unknowingly engag[ing] in” proscribed

behavior), rev’d on other grounds, 312 A.3d 674 (Del. 2024).

The RCA protected the interests of both Daxco, where Timm worked, in

addition to all other affiliates in the broader Diamond Parent business structure. The

RCA describes neither the nature of the work nor the scope of operations of these

other affiliates, even though the agreement elevates their purported economic

interests over Timm’s freedom of trade. This Court’s Payscale decision is clear: a

non-compete must “describe the lines of business in which any of those [protected

affiliate] entities operate,” and failure to do so renders the provision “unreasonably

vague.” 2025 WL 1622341 at *6.

Daxco makes two arguments against the proposition that the RCA’s

protection of the affiliates’ interest is overbroad. First, Daxco contends that Timm

was “personally familiar” with the affiliates’ business.69 Second, Daxco advances

that the parties require discovery to adequately determine the affiliates’ operation

and “the effect of those operations on the scope of the covenant occurred.”70

69
Def.’s Reply Br. in Supp. of His Mot. to Dismiss Pls.’ Verified Am. Compl., 23–24, D.I.
33.
70
Id. at 24.
24
The question here is whether it is reasonably conceivable that Daxco’s RCA

is enforceable. As applied to the question of Timm’s knowledge, I frame the issue

simply: is pleading Timm’s knowledge of the affiliates’ business sufficient to

demonstrate that the geographic scope is not overbroad. Under Eagle Infrastructure,

the employer must both (1) justify the economic interests of protecting the affiliates

and (2) show the employee’s knowledge of such operations. 2024 WL 5103919, at

*3. While Daxco’s pleading sufficiently pleads the latter point, the former remains

lacking. The RCA states no more than the fact that affiliates are protected and

enumerates a nonexhaustive list of countries where the RCA applies. 71

Second, the question of the covenants’ scope does not require further

discovery.72 While this Court has refused to enforce non-competes at the

preliminary injunction stage, I may appropriately dispose of the case via a motion to

dismiss under Rule 12(b)(6) where a pleading incorporates a facially invalid non-

compete. See, e.g., Intertek, 2023 WL 2544236, at *3 (dismissing a complaint

seeking to enforce a non-competition agreement). The Court can readily ascertain

71
See Am. Compl., ¶ 38.
72
While arguing that the question of reasonable scope is premature Plaintiff noted that a
series of decisions cited by Defendant were (1) in the context of a preliminary injunction
or later and (2) authored by the “same judicial officer.” Pls.’ Opp’n to Def.’s Mot. to
Dismiss, at 24, D.I. 32. This Court’s requirement that non-competes meet a stringent
standard of review prior to enforcement is not anomalous to one member of the Court. All
practitioners before this Court should be wary of suggesting such pejorations in their
briefing and argument.
25
that the RCA is overbroad in temporal duration and geographic scope, fails to

describe the lines of work of the affiliates, and disproportionately favors Diamond

Parent’s economic interests at Timm’s expense. The Court need not delve into fact-

specific questions—such as Timm’s knowledge of the scope of operations—when

other attributes of the RCA render it invalid.

3. It is not reasonably conceivable that a balancing of the
equities would support enforcement of the non-compete.
In determining whether a restrictive covenant is enforceable the Court

balances the “employer’s interest against the employee’s interests.” FP UC

Holdings, LLC v. Hamilton, 2020 WL 1492783, at *6 (Del. Ch. Mar. 27, 2020). The

Court will decline to enforce the RCA where “on balance, to do so would impose an

unusual hardship on a former employee.” Norton Petroleum Corp. v. Cameron,

1998 WL 118198, at *3 (Del. Ch. Mar. 5, 1998). Such analysis attends to the

reasonableness of bargained-for consideration when executing the non-compete.

Compare Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210, at *20 (Del. Ch. July 22,

2015) (enforcing a five-year, twenty-three-state non-compete in the sale of a

business context where purchaser paid $4 million), with Payscale, Inc. v. Norman,

2025 WL 1622341, at *5 (Del. Ch. June 9, 2025) (declining to enforce a non-

compete because the profits interest granted as consideration was “vanishingly small

compared to that received for the sale of a business . . . .”).

26
The presence of adequate consideration underpins Delaware’s rationale to

subject non-competes executed in the sale of a business context to less searching

inquiry. See, e.g., Derge v. D&H Fueling Solutions, Inc., 2025 WL 3511065, at *5

(Del. Ch. Dec. 8, 2025) (“[R]estrictive covenants in connection with a sale are

typically negotiated by parties with equal bargaining power, in circumstances where

the restricted person has received material consideration for her promise not to

compete.”); O’Leary v. Telecom Resources Service, LLC, 2011 WL 379300, at *5

(Del. Super. Jan. 14, 2011) (holding that a four-year non-compete is reasonable

where “[t]he Plaintiffs received substantial consideration for the sale of their

business and compensation as employees with the prospect of much more for

both.”).

Where an employee receives stock as consideration for the restrictive

covenant, however, the equities tend to fall in the employee’s favor. See FP UC

Holdings, 2020 WL 1492783, at *7. In both FP UC Holdings and Payscale, the

employee received a profits interest or stock units as consideration for the non-

compete. While such consideration is not inadequate per se, the presence of remote

vesting interests diminishes the adequacy of consideration when balanced against

the restriction on trade that the employee is subjected to. See FP UC Holdings, 2020

WL 1492783, at *7 (“[T]he record here lacks any evidence that [the employee]

received substantial consideration in exchange for his commitment not to work in

27
[the employer’s] industry anywhere in the United States. This raises the concern

that [the employer] significantly ratcheted up [the employee’s] non-compete

restrictions in exchange for token consideration.”).

Although the procedural posture of a Motion to Dismiss precludes

consideration of an evidentiary record, it is not reasonably conceivable that Timm’s

profits interest comprises adequate consideration for the geographically broad non-

compete. After all, the profits interest vested in tranches and Timm could only

expect to receive 50% of the total units, assuming he continued working at Daxco

for five years. The remaining 50% of the units would only vest upon sale of the

entities with certain financial benchmarks met, a standard Timm could neither expect

nor guarantee. The consideration that Timm received—the vesting 50% tranches

and the non-guaranteed contingent 50% portion—does not reasonably buttress a

two-year, worldwide agreement not to compete within 50 miles of ubiquitous fitness

businesses that use Daxco products. Thus, in keeping with this Payscale decision,

I hold that the profits-interest does not meet the “substantial consideration” test

necessary to uphold a broad non-compete.

B. The Court declines to blue pencil the non-compete.
While Delaware courts have discretion to blue pencil an overly broad

restrictive covenant, “[T]he court’s decision to exercise that equitable power should

be based on the [restrictive] covenants themselves and the circumstances

28
surrounding their adoption . . . .” Sunder Energy, LLC v. Jackson, 332 A.3d 472,

490 (Del. 2024). In Labyrinth, Inc. v. Urich, the Court exercised its equitable

discretion to blue pencil the agreement, in view of the sale of the business context,

lack of “disparate bargaining power,” and the fact that the parties “hotly and at length

negotiated” the non-compete. 2024 WL 295996, at *24 (Del. Ch. Jan. 26, 2024). In

Payscale, however, where the parties to the non-compete were employer and

employee and no such parity of bargaining power existed, the Court declined to blue

pencil the agreement. 2025 WL 1622341 at *7.

Because Daxco employed Timm, by nature of the employment relationship

the parties possessed unequal bargaining power, and the RCA did not accompany

the sale of a business, the facts fail to warrant the Court’s blue penciling the

agreement. The pleadings allege that Timm was an employee who gradually worked

his way up the ranks of Daxco, ultimately accepting a promotion to a senior sales

management position in an affiliate and executing the non-compete in exchange for

some contingent stock. Daxco’s acknowledgement that it informed Timm he had

the opportunity to obtain counsel does not plead the existence of bargained-for

exchange among equally positioned parties. See Payscale, 2025 WL 1622341 at *7

(“Nor does the Amended Complaint allege facts suggesting that the parties enjoyed

equal bargaining power, or even that the Restrictive Covenants were negotiated.”).

29
III. CONCLUSION

Because the non-compete is unenforceable, the Court recommends that the

Defendant’s motion to dismiss is GRANTED and Amended Complaint is

DISMISSED. This is my final report, and exceptions may be filed under Court of

Chancery Rule 144.

30