Much attention deservedly has been focused on the recent Delaware Chancery and Supreme Court decisions in the high-profile Vulcan/Martin Marietta case where the courts found that a “use restriction” in a confidentiality agreement (i.e., a provision that limits the recipient’s “use” of the disclosing party’s confidential information to a specified purpose) could in certain circumstances preclude the recipient from later commencing a hostile offer for a target company even absent an explicit standstill. A recent decision by Judge Rakoff in the Southern District of New York refusing the defendant’s motion to dismiss shows that “use restrictions” may also limit the ability of a recipient party to pursue an alternative opportunity after receiving confidential information under a non-disclosure agreement (NDA).

In the New York case (which at these preliminary stages accepts as true the factual allegations of the plaintiffs), a private equity investor signed an NDA with a broker/advisory firm that was seeking financing for a corporate client to implement a business idea in the cash management industry. The NDA stated that the PE firm would only use the confidential information shared by the broker to explore a potential business transaction involving the broker and the broker’s client. After actively considering a number of transaction opportunities with the broker and its client, the broker asserted that the investor later pursued and completed an acquisition of one of the potential targets allegedly identified by the broker without including the broker and its client.

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