The Deal Says Delaware, But California Has Final Word: Chancery Court Dismisses PE Buyer’s Restrictive Covenant Suit

The court held that it lacked personal jurisdiction over the partner. Evolution Parent Holdings, LLC (buyer) sued in Delaware for breach of noncompete, nonsolicitation, and confidentiality covenants, for tortious interference, and for trade secret misappropriation under both the California Uniform Trade Secrets Act and the federal Defend Trade Secrets Act. The only asserted basis for jurisdiction was an exclusive Delaware forum clause, which the buyer sought to interpret under an accompanying Delaware choice-of-law clause.

The buyer’s chosen forum did not hold. In Aprio Advisory Grp., LLC v. Alexeev, C.A. No. 2026-0508-JTL, 2026 WL 3094277 (Del. Ch. Oct. 16, 2026), Vice Chancellor Travis J. Laster held that California Labor Code § 925 rendered the Delaware forum and choice-of-law provisions voidable at the employee’s election and that the employee made that election by contesting personal jurisdiction. With those provisions invalidated and no other basis for jurisdiction, the court dismissed the case without reaching whether the covenants themselves were enforceable. This is an important reminder for purchasers of businesses that restrictive covenant agreements imposed on California-based equity holders as a condition of a deal may not be enforceable in Delaware, even with Delaware choice-of-law and forum provisions. The opinion currently is designated as unpublished. Readers should check applicable court rules before citing it.

Background: Restrictive Covenants as a Condition of the Acquisition

Dimitri Alexeev was a partner in Aprio LLP, an accounting firm that was a subsidiary of Aprio Advisory Group, LLC (Holdco), where he owned equity. The Buyer, backed by a private equity firm, acquired all of Holdco’s equity through a merger that closed on August 1, 2024. Alexeev received approximately $1 million in consideration for his equity, consisting of buyer member units and deferred cash.

As a condition of the acquisition, the buyer required every Holdco equity holder to sign a restrictive covenant agreement. Alexeev’s agreement contained noncompete, non-solicitation, and confidentiality restrictions running for three years after closing. The agreement did not contain its own choice-of-law or forum provision. Instead, it incorporated by reference the merger agreement’s Delaware choice-of-law clause and its clause designating the Delaware courts as the exclusive forum. But Alexeev lived and worked in California and signed the agreement there.

Alexeev resigned on October 27, 2025, and formed a competing firm. After some of the Aprio’s clients asked about moving their accounts to Alexeev’s new firm, the buyer and its affiliates sued in the Delaware Court of Chancery on April 20. Alexeev moved to dismiss for lack of personal jurisdiction, improper venue, and failure to state a claim. The court dismissed after evaluating only personal jurisdiction.

Section 925 of the California Labor Code and the Choice-of-Law Threshold

Section 925 provides that an employer may not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would either require the employee to adjudicate a California claim outside California or deprive the employee of the substantive protection of California law. Any such provision is voidable by the employee, and if the employee voids it, the matter must be adjudicated in California under California law.

Whether Section 925 applied to Alexeev presented a threshold choice-of-law question. The court found that Delaware law was a permissible choice because the buyer is a Delaware limited liability company, and Delaware law conclusively presumes a significant, material, and reasonable relationship with Delaware for contracts involving $100,000 or more that select Delaware law. But the court also found that, absent the Delaware forum and choice-of-law clauses, California law would govern. Alexeev signed, performed, and allegedly breached the agreement in California, and the form agreement was presented to him on a take-it-or-leave-it basis. By contrast, the court found that the buyer’s Delaware formation, which was its only tie to Delaware, was a weak contact. The court also noted that because the plaintiffs never identified their principal places of business, it was proper to infer that such information would have been adverse.

The Court Rejects Each of the Buyer’s Arguments Against Section 925

To avoid a conflict between California and Delaware law, the buyer argued that Section 925 did not apply at all. The court rejected each of the buyer’s four arguments.

Partner, not employee. The buyer first argued that Alexeev was a partner, not an employee, such that Section 925 does not apply. Noting that there is virtually no California authority defining who qualifies as an employee under Section 925, the court followed California case law and looked past Alexeev’s title to the realities of control. Although Alexeev held a partner title and equity, Holdco’s operating agreement vested management exclusively in its managing partner and CEO and barred members from any role in management or any authority to bind the company. Holdco’s own documents also described Alexeev as an “employee.” Paraphrasing George Orwell, the court wrote, “all partners are equal, but some are more equal than others.” Alexeev “had a partner title but not managerial authority,” so he was therefore “functionally an employee.”

Condition of the merger, not of employment. The buyer next argued that Alexeev signed the agreement as a condition of the merger, not as a condition of his employment. The court explained that the relevant question is whether the employee could have continued employment without signing. The buyer admitted that a partner who refused to sign would not have remained with the firm after closing. Signing was therefore a condition of employment.

Representation by counsel. Section 925(e) exempts a contract with an employee “who is in fact individually represented by legal counsel in negotiating the terms” of the forum or choice-of-law provision. The court read the exception to require both individual representation and actual negotiation, and it found neither. The law firm on which the buyer relied submitted an affidavit stating that it did not represent the individual members or partners but was instead retained by Holdco to assist individuals who chose to contact it with questions. The attorney also had no recollection of even communicating with Alexeev. And because the agreement was presented on a take-it-or-leave-it basis, nothing was negotiated.

Sale of a business. Finally, the buyer invoked California Business & Professions Code § 16601, which permits certain restrictive covenants in connection with the sale of a business. The court held that Section 16601 may validate the covenants themselves, but it does not validate forum or choice-of-law clauses. Because the dispute before the court concerned only the forum and choice-of-law provisions, it left any Section 16601 defense of the covenants themselves for another day.

California’s Fundamental Policy Controls

Because Section 925 applied, a true conflict existed between California and Delaware law. The court held that Section 925 reflects a fundamental California policy designed to protect employees from the oppressive use of employers’ superior bargaining power. Delaware’s competing interest, by contrast, was only a general interest in freedom of contract. The court explained that such a general interest, which arises in every case, cannot by itself override the fundamental policy of the default state; otherwise, “the Restatement test would be meaningless.” California’s materially greater interest therefore rendered the Delaware provisions voidable.

Alexeev exercised his right to void the provisions by moving to dismiss for lack of personal jurisdiction. Without the Delaware forum clause or any other basis for personal jurisdiction, the court dismissed the case.

Practical Takeaways

This decision offers several practical lessons for purchasers, private equity sponsors, and employers seeking to enforce restrictive covenants against California-based personnel. Ultimately, buyers should plan for the possibility that enforcement actions against California-based sellers and employees will need to proceed in California under California law.

• Partner titles do not determine employee status. When restrictive covenants are imposed on California-based equity holders in an acquisition, a “partner” title will not shield out-of-state forum and choice-of-law clauses if the individual lacks real managerial control. Courts will look to governance documents, and to how the company itself describes the individual, to determine whether he or she is functionally an “employee.”
• The Section 925(e) counsel exception is narrow. Making deal counsel available to answer questions likely is insufficient. The court found that the exception requires that the employee be individually represented and that the terms actually be negotiated. Parties intending to invoke the exception should carefully document both elements.
• A Delaware deal structure may not overcome California’s fundamental policy. Even when Delaware law is a legally permissible choice, when the individual signs, works, and allegedly breaches in California, Section 925 can override Delaware’s general interest in freedom of contract. Notably, the employee can exercise the right to void the provisions simply by contesting jurisdiction.