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CorVel Enterprise Comp., Inc. v. Schaffer, C.A. No. 4896-VCN (May 19, 2010) (Noble, VC)

May 19, 2010

In this action, the Court of Chancery granted defendant’s motion for judgment on the pleadings, holding that a release executed by the parties in connection with resolving a dispute relating to a stock purchase agreement was broad enough to also release defendant from his obligations under a noncompetition agreement executed in connection with the transactions contemplated in the stock purchase agreement.

CorVel Enterprise Comp., Inc. (“CorVel”) acquired The Schaffer Companies (the “Company”) pursuant to a stock purchase agreement with the Company’s stockholders. At the same time, defendant Schaffer executed a five-year noncompetition agreement with CorVel. A dispute between the former stockholders (including Schaffer) and CorVel arose over an earn-out provision in the stock purchase agreement. In connection with resolving the dispute over the earn-out, the parties executed a settlement and general release. The release stated that “CorVel fully releases, acquits, and forever discharges the shareholders [i.e., Schaffer] from any and all claims … obligations … including without limitation … any claims arising out of any relationship between shareholders and CorVel.” After Schaffer took a job with a competitor, CorVel initiated this action to enforce the noncompetition agreement. Schaffer argued that, in addition to the earn-out dispute, the release also relieved him of his duties under the noncompetition agreement.

The Court held that the language of the release was “broad,” “very general,” and that the only fair way to read the language of the release was to encompass the entire breadth of the relationship between CorVel and Shaffer, including Schaffer’s obligations under the noncompetition agreement. In making this determination, the Court considered the fact that the noncompetition agreement and the stock purchase agreement operated as a joint undertaking with a combined subject matter, and that the whereas clauses of the release stated a desire by the parties to “end their relationship on an amicable basis” and to “resolve any actual or potential disputes and claims.” As the language of release was clear and unambiguous, the Court’s noted that its role was limited to give meaning and substance to the words that the parties had freely chosen.

The full opinion is available here