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Inteam Associates, LLC v. Heartland Payment Systems, LLC

Court of Chancery of Delaware

March 29, 2018

INTEAM ASSOCIATES, LLC, a Delaware limited liability company, as successor-in-interest to SL-TECH TECHNOLOGIES, INC., a Delaware corporation, Plaintiff,
v.
HEARTLAND PAYMENT SYSTEMS, LLC, Defendant. HEARTLAND PAYMENT SYSTEMS, LLC, Counterclaim Plaintiff,
v.
LAWRENCE GOODMAN, III and INTEAM ASSOCIATES, LLC, Counterclaim Defendants.

          ORDER CRAFTING REMEDY FOLLOWING REMAND

          Tamika Montgomery-Reeves Vice Chancellor

         WHEREAS, on September 30, 2016, this Court issued a post-trial memorandum opinion in the instant case;

         WHEREAS, on August 17, 2017, the Delaware Supreme Court issued an opinion affirming in part and reversing in part this Court's opinion;

          WHEREAS, the Supreme Court "remand[ed] the case to the Court of Chancery to exercise its broad discretion to craft a remedy" consistent with its opinion;

         NOW, THEREFORE, THE COURT HEREBY FINDS AND ORDERS AS FOLLOWS: 1. I have reviewed the parties' briefs, supporting submissions, and the applicable law.

         2. I detail only the facts necessary to craft a remedy pursuant to the Supreme Court's instruction.[1] For a full recounting of the events leading up to this case, see Heartland Payment Systems, LLC v. inTEAM Associates, LLC, 171 A.3d 544 (Del. 2017).

         3. Heartland Payment Systems, Inc. ("Heartland") is a credit card payment processor for industries including K-12 schools. Tr. 611-12 (Lawler). Additionally, Heartland produces computer software to manage school meal programs for the K-12 foodservice industry. Id. In September 2011, Heartland entered into a purchase agreement (the "Asset Purchase Agreement") to acquire the assets of School Link Technologies, Inc. ("SL-Tech"), a producer of computer software for food service operations management. JX 25. The Asset Purchase Agreement excluded one division of SL-Tech from the acquisition, a consulting business spun off to create inTEAM Associates, LLC ("inTEAM"). Id. at Ex. A, at A-4; Id. at Ex. M. Lawrence Goodman, III, SL-Tech's former CEO, became CEO of inTEAM. PTO ¶ III.A.3.

         4. The parties executed two additional agreements concurrent with the Asset Purchase Agreement. A co-marketing agreement (the "Co-Marketing Agreement") granted Heartland and inTEAM the right to market one another's products. JX 23 § 2.1. Under a consulting agreement (the "Consulting Agreement"), Goodman served as a strategic advisor to Heartland in exchange for a monthly salary. JX 22 ¶¶ 1, 3. The Asset Purchase Agreement, Co-Marketing Agreement, and Consulting Agreement each contain non-compete provisions. The Asset Purchase Agreement states that "[f]or a period of five (5) years from and after the Closing Date, neither [SL-Tech] nor [Goodman] will engage directly or indirectly . . . in providing any Competitive Services or Products or any business that School-Link conducts as of the Closing Date in any of the Restricted Territory." JX 25 § 5(n). The Co-Marketing Agreement states that "inTEAM shall not engage, directly or indirectly, on its own behalf or as a principal or representative of any person, in providing any services or products competitive with the HPS Business." JX 23 § 9.1.1(B). It also states that "[Heartland] shall not engage, directly or indirectly . . . in providing any services or products competitive with the inTEAM Business Id. §9.1.1. The Consulting Agreement states:

[Goodman] shall not directly or indirectly, on behalf of himself or on behalf of any other person, firm or business entity: (i) become an owner of any outstanding capital stock, or a member or partner, of any company, partnership, or entity that engages in Competitive Business within the Restricted Territory; or (ii) perform or provide any services, whether as an employee, owner, consultant or otherwise, to, for or on behalf of any company, partnership, or entity that engages in Competitive Business within the Restricted Territory, if such services are the same or similar in character to the services performed or provided by [Goodman] to Heartland pursuant to this Agreement.

JX 22 ¶ 11(a).

         5. Despite the multitude of non-compete provisions, each of the parties began taking competitive actions. "inTEAM developed a new software program module . . . with overlapping capabilities with" an SL-Tech software program acquired by Heartland. Heartland, 171 A.3d at 546. "Goodman tried to solicit one of Heartland's customers. Heartland paired with one of in TEAM's biggest competitors to submit a bid to provide software to the Texas Department of Agriculture." Id.

          6. The parties subsequently brought claims and counterclaims in the Court of Chancery, with inTEAM seeking to enjoin Heartland's actions and Heartland seeking to enjoin the behavior of inTEAM and Goodman. in TEAM, 2016 WL 5660282, at *1. Following a four-day trial, this Court held that Heartland breached its non-compete obligations under the Co-Marketing Agreement, id. at *17, but that neither inTEAM nor Goodman violated any non-compete provisions. Id. at *14, *23. This Court also held that Goodman violated certain non-solicitation obligations contained in the Consulting Agreement. Id. at *25. This Court enjoined Heartland from engaging in competitive activities from September 30, 2016 to March 21, 2018, id. at *27, and ordered Goodman to disgorge his consulting fees from "July, August, and September 2014, totaling $50, 003.01" due to his breach of the non-solicitation obligations contained in the Consulting Agreement. Id. at *28.

         7. On appeal, the Supreme Court affirmed that "Heartland breached its contractual obligations by collaborating with an inTEAM competitor, and Goodman breached by soliciting a customer of Heartland." Heartland, 171 A.3d at 547. Further, the Supreme Court noted that the Court of Chancery "did not abuse its discretion... [in the] assessed damages against Goodman." Id. The Supreme Court, however, "reverse[d] the Court of Chancery's finding that Goodman and inTEAM did not breach their non-compete obligations under the various agreements, " holding instead that Goodman and inTEAM each breached their non-compete obligations in 2012. Id. The Supreme Court "remand[ed] the case to the Court of Chancery to exercise its broad discretion to craft a remedy sufficient to compensate Heartland for Goodman's and inTEAM's breaches of the transaction documents." Id. The Supreme Court also noted that the Court of Chancery may "consider certain affirmative defenses . . . [that were] properly raised and briefed ... at trial [which] the Court of Chancery did not reach . . . because it found no violation" of the non-compete obligations by inTEAM and Goodman. Id. at 572.

         8. On remand, the parties primarily seek injunctive relief to enforce the contractual non-compete provisions against each other. Heartland seeks to (i) vacate the standing injunction against it and (ii) enjoin inTEAM and Goodman from selling competing products. Def.'s Opening Br. 9. inTEAM asks the Court to let the existing injunction against Heartland stand. PI. & Countercl. Def.'s Answering Br. 39. Both parties raise the affirmative defense of unclean hands. Def.'s Opening Br. 12; PI. & Countercl. Def.'s Answering Br. 23. I agree and conclude that the doctrine of unclean hands bars either party from receiving the equitable relief of an injunction. See, e.g., Alpha Builders, Inc. v. ...


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