Lkq Corporation v. Robert Rutledge

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 23-2330
LKQ C ORPORATION ,
Plaintiff/Counter-Defendant-Appellant,
v.
R OBERT R UTLEDGE,
Defendant/Counter-Claimant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:21-cv-03022 — Thomas M. Durkin, Judge.
____________________
A RGUED F EBRUARY 14, 2024 — DECIDED J ANUARY 22, 2025
____________________
Before S CUDDER , S T. EVE, and LEE, Circuit Judges.
S CUDDER , Circuit Judge. LKQ Corporation seeks to enforce
Restricted Stock Unit Agreements against its former em-
ployee Robert Rutledge. The RSU Agreements contain forfei-
ture-for-competition provisions—contractual conditions re-
quiring former employees to forfeit certain monetary benefits
upon leaving the company and joining a competitor. Because
Delaware law governs the RSU Agreements, we certified two
questions to the Delaware Supreme Court seeking guidance

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2 No. 23-2330
on the enforceability of forfeiture-for-competition provisions.
The Delaware Supreme Court’s answer to our certified ques-
tions makes clear that LKQ can enforce its forfeiture-for-com-
petition provision against Rutledge. We therefore reverse the
district court’s entry of summary judgment for Rutledge on
LKQ’s claim that he breached the RSU Agreements.
I
Robert Rutledge worked as a plant manager at LKQ Cor-
poration for over a decade. The company designated
Rutledge as a “key person” eligible to receive restricted stock
unit awards on a vesting schedule. LKQ conditioned those
awards on Rutledge’s execution of Restricted Stock Unit
Agreements containing forfeiture-for-competition provisions.
Those provisions prohibited Rutledge from working for a
competitor within nine months of leaving LKQ. In the event
of a breach, the Agreements permitted the company to claw
back all proceeds from Rutledge’s stock unit awards.
During his many years at LKQ, Rutledge received several
stock awards and executed several accompanying RSU
Agreements. Eventually, in 2021, Rutledge left LKQ and be-
gan working for a competitor five days later. LKQ initiated
this lawsuit against Rutledge, alleging unjust enrichment and
breach of both the RSU Agreements and separate restrictive
covenant agreements. The district court entered summary
judgment in favor of Rutledge on all of LKQ’s claims, and the
company appealed.
We affirmed the district court’s entry of judgment on the
unjust enrichment and restrictive covenant claims but were
unable to determine whether, under Delaware law, we should
review the forfeiture-for-competition provisions in the RSU

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No. 23-2330 3
Agreements for reasonableness before enforcing them. See
LKQ Corp. v. Rutledge, 96 F.4th 977, 987 (7th Cir. 2024). We ob-
served that, while LKQ’s appeal was pending, the Delaware
Supreme Court decided Cantor Fitzgerald L.P. v. Ainslie, hold-
ing that forfeiture-for-competition provisions in limited part-
nership agreements are generally enforceable under the em-
ployee choice doctrine and are therefore not subject to judicial
review for reasonableness. See 312 A.3d 674, 692 (Del. 2024).
Yet we could not discern with confidence whether Cantor Fitz-
gerald applied outside the context of limited partnership
agreements. So we chose to certify the following questions to
the Delaware Supreme Court:
(1) Whether Cantor Fitzgerald precludes reviewing forfei-
ture-for-competition provisions for reasonableness in
circumstances outside the limited partnership con-
text?
(2) If Cantor Fitzgerald does not apply in all other circum-
stances, what factors inform its application? For exam-
ple, does it matter what type of agreement the forfei-
ture provision appears in, how sophisticated the par-
ties are, whether the parties retained counsel to review
the provision, whether the forfeiture involves a con-
tingent payment or claw back, how far backward a
claw back reaches, whether the employee quit or was
involuntarily terminated, or whether the provision
also entitled the company to injunctive relief?
The Delaware Supreme Court accepted our certification
and answered the first question, holding that “Cantor Fitzger-
ald is not restricted to the limited partnership context.” LKQ
Corp. v. Rutledge, No. 110, 2024 WL 5152746, at *1 (Del. Dec.
18, 2024). The court also determined that, because “Cantor

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4 No. 23-2330
Fitzgerald applies in other circumstances, including to RSU
agreements,” it “need not address the second certified ques-
tion.” Id. at *6.
The appeal now returns to us for resolution.
II
The Delaware Supreme Court’s answer to our first certi-
fied question establishes that the forfeiture-for-competition
provisions in the RSU Agreements are not subject to judicial
review for reasonableness. In no uncertain terms, the court
explained that, “in Cantor Fitzgerald,” it had “weighed the
competing policy concerns and chose the employee choice
doctrine.” Id. at *5. And under that doctrine, “courts do not
review forfeiture-for-competition provisions for reasonable-
ness so long as the employee voluntarily terminated her em-
ployment.” Id. (quoting Cantor Fitzgerald, 312 A.3d at 684). To
be sure, the Delaware Supreme Court left open the possibility
of recognizing an exception where a forfeiture provision is
“so extreme in duration and financial hardship that it pre-
cludes employee choice by an unsophisticated party.” Id. at
*6. But the court’s description of its Cantor Fitzgerald holding
as “broad” leaves no doubt that any such exception is limited
and would apply only in the most extraordinary of circum-
stances. Id. at *4.
Based on the undisputed facts in the record, we see this
case as falling within the broad norm rather than the limited
exception. Indeed, the facts here resemble those of W.R. Berk-
ley Corp. v. Hall, a case the Delaware Supreme Court described
favorably when answering our first certified question. See No.
03-C-12-146WCC, 2005 WL 406348 (Del. Sup. Ct. Feb. 16,
2005). In Hall, the Delaware Superior Court enforced a

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No. 23-2330 5
provision of an employer’s incentive stock option plan that
prohibited competition within six months of an employee’s
departure. See id. at *5. Importantly, the defendant in Hall—a
management-level employee earning an annual salary of un-
der $200,000—was not as sophisticated as the defendants in
Cantor Fitzgerald, who were partners at a global financial ser-
vices firm. See id. at *1; Cantor Fitzgerald, 312 A.3d at 678. Still,
as the Delaware Supreme Court observed, the Hall court “was
unpersuaded” by the defendant’s “general appeal to unfair-
ness,” and allowed his employer to claw back around
$180,000 in gains the employee realized from exercising stock
options. LKQ Corp., 2024 WL 5152746, at *6.
In much the same way, LKQ’s RSU Agreements prohibit
competition within nine months of departure and, if enforced,
would ultimately allow the company to claw back hundreds
of thousands of dollars’ worth of stock awards from Rutledge.
Though Rutledge may not earn as high a salary as the defend-
ants in Hall or Cantor Fitzgerald, he is hardly unsophisticated.
He held a management position at LKQ, made a salary of
around $109,000, and voluntarily agreed to a restricted stock
award benefit available only to “key persons”—a designation
reserved for less than two percent of the company’s work-
force.
We of course recognize that enforcement of the forfeiture
provision—which would allow LKQ to claw back a substan-
tial sum— would subject Rutledge to a hardship. But, as the
Delaware Supreme Court has now explained, the employee
choice doctrine is “broad,” and Delaware “enforce[s] as a mat-
ter of fundamental public policy the voluntary agreements of
sophisticated parties.” LKQ Corp., 2024 WL 5152746, at *4
(quoting Cantor Fitzgerald, 312 A.3d at 689). Rutledge does not

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6 No. 23-2330
face the type of extraordinary hardship that might allow us to
override that fundamental public policy, as determined by
Delaware’s highest court.
For these reasons, we REVERSE the district court’s entry
of summary judgment for Rutledge on LKQ’s claim that he
violated the RSU Agreements. We are mindful that the district
court based its summary judgment decision on that claim
solely on its determination that the RSU Agreements were un-
enforceable under Delaware law—without determining
whether Rutledge actually breached the Agreements. Because
the Delaware Supreme Court’s answer to our first certified
question speaks only to the enforceability issue and not the
issue of breach, we leave it to the district court on remand to
determine whether to reopen summary judgment proceed-
ings, proceed to trial, or some combination of those options.

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