In Cantor Fitzgerald v. Ainslie, the Delaware Supreme Court upheld the validity of a post-employment restriction in a limited partnership agreement. The decision overturned the ruling of the Delaware Court of Chancery invalidating a forfeiture-for-competition provision, which permitted the partnership to withhold distributions to partners who voluntarily withdrew from and then competed with the partnership.

The Dispute

The dispute arose from the parties’ limited partnership agreement, which authorized the partnership to withhold distributions that would otherwise be paid to partners who engaged in competitive activities within four years of their departure from the partnership. A group of former partners sued to have the forfeiture-for-competition provision (the provision) invalidated. The partnership did not seek to enforce the restrictive covenant that prohibited former partners from competing and did not request injunctive relief. Instead, the partnership contended that the plaintiffs were free to compete but only at the cost of forfeiting their rights to the distributions as set forth in the partnership agreement.

Court of Chancery Decision