Pagaya’s acquisition of Theorem: A Lesson in No-Contact vs. Intent-Based Restrictive Covenants

Acquiring company Pagaya Technologies Ltd. (“Pagaya”) allegedly suppressed performance to reduce contingent compensation to its target Theorem Technology, Inc. (“Theorem”). The former CIO of Theorem, who had been hired by Pagaya, then allegedly retaliated by submitting non-public information to Theorem clients, who in turn reduced their business with Theorem and Pagaya.

In Hugh Edmundnson v. Theorem Technology, Inc., decided on September 14, 2026, Magistrate in Chancery Wright granted an advancement action for Edmundnson, which is where the court orders payment of defense costs as incurred.

Hugh Edmundnson was a co-founder, CIO, and former director of Theorem, an SEC-registered investment advisor that specializes in AI-enabled consumer credit.

Pagaya is an Israeli financial technology and investment management company headquartered in New York City. Pagaya acquired Theorem in 2024 via merger. The merger agreement included 4 year restrictive covenants for the CIO and CEO of Theorem who were hired by Pagaya.

Edmundnson was fired in 2025, which he alleges is because he reported violations of federal securities laws.

The court said:

⚖️ Section 5.17(b)(i) of the Merger Agreement, the centerpiece of the Arbitration Claim, is not a flat “no-contact” restrictive covenant. It is intent-based, meaning why Edmundson did what he is alleged to have done post-termination, and why Theorem clients who diminished their relationship with Pagaya and Theorem did so, are questions the arbitrators will need to determine.

Delaware courts have struck down no-contact restrictive covenants as overbroad, but these courts do enforce intent-based restrictions based on reasonableness and scope. Delaware Courts, however, are not blue penciling overly broad restrictive covenants, meaning they are not rewriting them to make them acceptable to the court. As in BluSky Restoration Contractors, LLC v. Robbins, decided in March 2026, the court declined to rewrite overly broad restrictive covenants, and instead threw them out (in that case a regional business asked for a worldwide noncompete). Thus, Delaware courts now demand contract precision in restrictive covenants, even when tied to a company sale. Buyers, therefore, should carefully draft restrictive covenants that are not broader than the competitive footprint and preexisting enterprise business.

In this case, the question before the arbitrator will be the intent behind Edmundnson’s actions, and whether and to what extent clients diminished business in response to Edmundnson’s actions. Edmundnson’s reasonable defense fees will be paid in the meantime.

Jerome Fogel is a founding partner of Fogel & Potamianos LLP, a firm recognized by Chambers & Partners’ California Spotlight Guide for excellence in corporate law. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He serves as a general counsel to privately held companies with a specialty in mergers and acquisitions.

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