      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

UTILISAVE, LLC,                             )
                                            )
                  Plaintiff,                )
                                            )
           v.                               )         C.A. No. 10729-VCP
                                            )
DONNA C. MIELE,                             )
                                            )
                  Defendant.                )



                           MEMORANDUM OPINION

                          Date Submitted: May 12, 2015
                         Date Decided: September 17, 2015


John G. Harris, Esq., BERGER HARRIS LLP, Wilmington, Delaware; Attorneys for
Plaintiff.

Joanne P. Pinckney, Esq., Elizabeth Wilburn Joyce, Esq., PINCKNEY, WEIDINGER,
URBAN & JOYCE LLC, Wilmington, Delaware; Attorneys for Defendant.


PARSONS, Vice Chancellor.
       This is an action by a Delaware limited liability company (“LLC”) against a

former member and employee for breach of a confidentiality provision in the LLC

operating agreement.     The LLC claims to own valuable confidential information,

including trade secrets. The former member and employee was a senior executive of the

LLC who allegedly had access to its confidential information. A few months after the

defendant resigned as an employee in late 2014, she allegedly began to compete with the

LLC.    Thereafter, the plaintiff filed this action against the defendant for specific

performance of the confidentiality provision and damages. This motion currently is

before me on the defendant‟s motion to dismiss.

       For the reasons that follow, I deny the defendant‟s motion as to the plaintiff‟s

claim for equitable relief and grant it as to the plaintiff‟s claim for monetary damages.

Taking all well-pled allegations of fact as true and drawing all reasonable inferences in

favor of the plaintiff, the complaint pleads only one non-conclusory breach of the

confidentiality provision at issue. As to that alleged breach, I conclude the defendant

failed to carry her burden of proving that the contract was invalid or unenforceable as a

matter of law. I also conclude that it is reasonably conceivable that the plaintiff could

prove that the confidentiality provision survived a court ordered termination of the LLC

and that the restrictions it imposes on the defendant are not overly broad or unreasonable

as a matter of law.




                                          1
                                I.        BACKGROUND1

                                     A.     The Parties

       Plaintiff, UtiliSave, LLC (the “Company”), is a limited liability company formed

under the laws of the State of Delaware. Michael H. Steifman, currently the sole owner

and manager of the Company, founded UtiliSave in 1991. UtiliSave has been and

continues to be an innovator and industry leader in the business of auditing the utility

bills of large institutions such as universities and hospitals. UtiliSave collects tens of

millions of pieces of data regarding its clients‟ utility usage and analyzes them in light of

the applicable regulatory scheme by employing proprietary methods and processes that

enable UtiliSave to find its clients savings in the form of exemptions, credits, refunds, or

improved rate or service classifications.

       Defendant, Donna C. Miele, is a former employee and member of UtiliSave. In

2000, UtiliSave hired Miele to a senior management position. As a member of the senior

management team, Miele‟s responsibilities touched on many aspects of UtiliSave‟s

business, including client relations, sales development, human resources, collections,

utility auditing, and operations.     In 2006, Miele became an owner and Member of

UtiliSave when she, Steifman, and Mikhail Khenin executed the Amended and Restated

Limited Liability Company Agreement of UtiliSave, LLC, dated as of January 1, 2006




1
       The facts are drawn from the well-pled allegations of Plaintiff‟s Verified
       Complaint (the “Complaint”), which are assumed true for purposes of the
       Defendant‟s motion to dismiss, as well as documents integral to the Complaint or
       incorporated by reference therein.

                                            2
(the “LLC Agreement”).2 Miele also signed an employment contract, dated as of January

1, 2006 (the “Employment Agreement”), that expired by its terms on January 1, 2008.3

Miele‟s Membership in UtiliSave terminated on July 12, 2012, by order of this Court.4

Miele continued as an employee of UtiliSave until she resigned from the Company in

October 2014.

                                      B.       Facts

       The Complaint arises from the terms of the LLC Agreement and, at this stage,

turns largely on whether a confidentiality provision therein survived the termination of

Miele‟s membership interest in UtiliSave and is enforceable.          The confidentiality

provision at issue, if valid and enforceable, prohibits Miele from disclosing or using for

her own account anything defined as confidential information “for as long as the

Company is engaged in the UtiliSave Business[.]”5 Plaintiff alleges that Miele, after

resigning from UtiliSave, used the Company‟s confidential information for her own

account in breach of the confidentiality provision.

                   1.      The LLC Agreement and its termination

       Upon execution of the LLC Agreement, Managing Members Steifman and Khenin

each owned 40% of UtiliSave; Miele, a non-managing Member, and a group of Gotham



2
       Def.‟s Opening Br. Ex. B (the LLC Agreement).
3
       Def.‟s Opening Br. Ex. C (the Employment Agreement).
4
       In re UtiliSave, LLC, C.A. No. 4441-CS (Del. Ch. July 9, 2012).
5
       LLC Agreement § 5.05.

                                           3
entities each owned 10%.6 The LLC Agreement contained a confidentiality provision

(the “Confidentiality Provision”), which stated, in relevant part:

              Each Member acknowledges that the information,
              observations and data (including, but not limited to, financial
              information, customer lists, techniques, audit issues,
              procedure and analysis) obtained by it while a Member of the
              Company concerning the business or affairs of the Company
              (“Confidential Information”) are the property of the
              Company. Therefore, each Member agrees that, for as long
              as the Company is engaged in the UtiliSave Business, it shall
              not disclose to any unauthorized person or use for its own
              account any Confidential Information without the unanimous
              prior written consent of the other Members, unless and to the
              extent that the aforementioned matters (i) were already in the
              Member‟s possession before its association with the
              Company (including any due diligence period), (ii) become
              generally known to and available for use by the public other
              than as a result of the Member‟s acts or omissions to act or
              (iii) are required to be disclosed by any court, tribunal or
              federal or state agency. . . . Each Member shall deliver to the
              Company at any other time the Company may request, all
              memoranda, notes, plans, records, reports, computer tapes
              and software and other documents and data (and copies
              thereof) relating to the Confidential Information, work
              product or the business of the Company which it may then
              possess or have under his control, except for those items that
              were the property of the Member prior to the commencement
              of business (including any diligence period) by the Company.
              This provision shall (i) also be binding on the principals,
              employees and agents of the Members, (ii) survive the
              termination of the Company and (iii) continue to be binding
              on a Member following the termination of its interest in the
              Company.7


6
       LLC Agreement Schedule A. Steifman owned his stake through a wholly owned
       entity, MHS Venture. The Gotham entities were Gotham Partners, L.P., Gotham
       Partners III, L.P., and Gotham Holdings II, LLC.
7
       LLC Agreement § 5.05 (emphasis added).

                                            4
         A dispute arose between Steifman and Khenin beginning in 2007; in 2009,

Steifman filed a lawsuit against Khenin in New York and commenced a dissolution

proceeding in this Court, which was stayed pending resolution of the New York action. 8

After resolution of the New York action, the details of which are not relevant here, the

Delaware Court entered an Order Appointing Liquidating Trustee for UtiliSave, LLC, on

August 26, 2011.9       In his Report and Plan of Distribution, the Liquidating Trustee

described his authority to pursue, among other things, “the private sale of the Company

as a going concern to a Member, a third party or a combination of parties . . . and any

other business option utilizing the full range of business judgment.”10 He engaged an

investment bank and conducted a market check, but Steifman submitted the only formal

bid.11

         Steifman‟s bid tracked the terms of the LLC Agreement, which provided “MHS

and certain other Members, whose interests were subsequently purchased by MHS, . . . a

priority claim on distributions from the Company until such time as the cumulative

distributions to those Members exceed $5.25 million . . . .”12          According to the



8
         Def.‟s Opening Br. Ex. D (“Report and Plan of Distribution”); Report and Plan of
         Distribution Ex. B (Steifman v. Khenin, et al., Index No. 14929/08 (N.Y. Sup. Ct.
         Westchester Cty.)).
9
         Report and Plan of Distribution 1.
10
         Id.
11
         Id. at 9-10.
12
         Id. at 10.
                                              5
Liquidating Trustee, Steifman, through MHS, was willing to purchase UtiliSave for up to

the value of his priority claim, which equaled $3,434,500 at that time. 13 Based on his

priority claim, Steifman‟s bid required Khenin and Miele to assign to the Company their

membership interests and for the Company then to terminate those interests in exchange

for Steifman‟s release of both his priority claim and other claims that he had or may have

had against the Company.14 Rather than require a two-step transaction whereby Steifman

would purchase UtiliSave as a going concern and then distribute his priority claim back

to himself, the Liquidating Trustee recommended, and the Court approved, Steifman‟s

proposal.15 Thus, the Court ordered, among other things: “Donna Miele‟s interests in the

Company are canceled effective the date of this Order, and she shall deliver any

certificates representing such interests to the Liquidating Trustee within five (5) business

days of the date of this Order.”16

       Consistent with the Court‟s Order, Miele executed an Assignment and

Termination of Membership Interest, dated as of July 12, 2012 (the “Assignment

Agreement”).17 In relevant part, the Assignment Agreement states as follows:




13
       Id.
14
       Id.
15
       In re UtiliSave, LLC, C.A. No. 4441-CS (Del. Ch. July 9, 2012).
16
       Id. at 2.
17
       Def.‟s Opening Br. Ex. E (the Assignment Agreement).

                                           6
                                     RECITALS

             A.    Assignor [Miele] and Assignee [UtiliSave] entered
                   into [the LLC Agreement].

             B.    Pursuant to the [LLC] Agreement, Assignor owns a
                   membership interest in Utilisave [sic], together with
                   certain rights, interests and obligations (collectively,
                   the “LLC Interest”).

             C.    Assignor has been required by Court Order to assign
                   and transfer the LLC Interest to Assignee.

                                   AGREEMENTS

             1.    Assignment and Termination. Assignor hereby grants,
                   conveys, assigns and transfers unto Assignee the LLC
                   Interest. Effective upon the execution and delivery of
                   this Assignment, Assignor‟s Membership Interest (as
                   defined in the Agreement) shall automatically
                   terminate, and the internal records of Utilisave [sic]
                   shall be updated to reflect the Membership Interest of
                   Assignor as having been liquidated, terminated and
                   retired for all purposes.

             2.    No Further Capital Contributions. Assignor is hereby
                   released from any and all obligations to make further
                   capital contributions in connection with the Agreement
                   and/or the Project (as defined in the Agreement).18

      Miele continued working for UtiliSave for another two years until she verbally

informed Steifman that she intended to retire around the end of the summer in 2014.

Steifman convinced Miele to consult from home on a part-time basis effective August 1,

2014. In mid-October, however, Miele permanently resigned from UtiliSave. Plaintiff




18
      Assignment Agreement.

                                         7
complains that, in or around January 2015, Miele used UtiliSave‟s Confidential

Information in breach of the Confidentiality Provision.

                     2.       UtiliSave’s Confidential Information

       The LLC Agreement defines Confidential Information in the case of a Member,

like Miele, to include “information, observations and data (including, but not limited to,

financial information, customer lists, techniques, audit issues, procedure and analysis)

obtained . . . while a Member of the Company concerning the business or affairs of the

Company[.]”19 UtiliSave focuses on three particular types of Confidential Information:

the GRT Process, billing records, and client lists.

       As stated previously, UtiliSave collects tens of millions of pieces of data regarding

its clients‟ utility usage and analyzes them in light of the applicable regulatory scheme by

employing proprietary methods and processes that enable the Company to find its clients

savings. In particular, UtiliSave developed and uses a unique, proprietary, and valuable

auditing process that secures for its clients refunds relating to the gross receipts tax that

utilities pass on to their customers (the “GRT Process”). Although not stated expressly in

the Complaint, I infer that UtiliSave employs computer software to collect and analyze

this voluminous data, which reflects a unique, proprietary, and valuable auditing

process.20 Plaintiff alleges this process is known to Miele, but they do not allege that



19
       LLC Agreement § 5.05.
20
       Plaintiff alleges that “[t]here is no off-the-shelf software that would enable
       someone outside of UtiliSave to perform a similar analysis or achieve similar
       results . . . .” Compl. ¶ 7.

                                            8
Miele took any computer hardware or software with her when she left the Company.

Second, UtiliSave considers its billing records proprietary and confidential because they

include descriptions of savings and unique analytical methods and processes. Finally,

UtiliSave views its client list as confidential. This list, cultivated over the last twenty-

four years, includes not only the names of large institutions with tens of thousands of

compartmentalized employees, but also valuable contacts within these institutions that

enable UtiliSave to cut through layers of bureaucracy and go straight to the decision-

maker.

         UtiliSave alleges that it takes steps to protect its confidential information by

requiring, among other things, its employees and customers to sign comprehensive

confidentiality agreements that prohibit the disclosure or use of any non-public

information belonging to UtiliSave. For example, because its billing records include

descriptions of savings and unique analytical methods and processes, UtiliSave‟s

customer contracts include a non-disclosure clause prohibiting the customer from

disclosing any of the Company‟s work product, such as utility usage analysis, areas of

savings, and auditing procedures. In addition, UtiliSave does not publish the names of its

client contacts or similar information on its website or disclose it in other marketing

materials.

              3.      Miele contacts one of UtiliSave’s longstanding clients

         While an owner and senior manager of UtiliSave, Miele had access to nearly all of

UtiliSave‟s confidential and proprietary information, including, without limitation,

pricing information, client lists, marketing strategies, and trade secrets, such as the GRT

                                           9
Process and other proprietary auditing methods and processes. On January 26, 2015,

approximately three months after Miele resigned, a high-level executive of a former

client informed Steifman that Miele recently had formed her own utility auditing

business. On January 28, UtiliSave sent a letter to Miele requesting that she confirm or

deny what the Company had learned and informing her that it would interpret a

nonresponse as an admission that Miele was competing or planning to compete against

UtiliSave. Miele had not responded to this letter as of the filing of the Complaint.

       On February 9, 2015, Steifman learned from a high-level source within New York

University Langone Medical Center (“NYUMC”), a longstanding and valuable client of

the Company, that Miele had solicited him for NYUMC‟s utility auditing business and

that he had agreed to meet with her to discuss that subject.

                              C.       Procedural History

       UtiliSave filed the Complaint against Miele, alleging claims for specific

performance and breach of contract and seeking certain equitable, injunctive and

monetary relief, on February 27, 2015. The Company also moved to expedite this action

on the same day. On April 6, the Court entered a negotiated Stipulated Status Quo and

Scheduling Order. Defendant filed her motion to dismiss on April 10 and I heard oral

argument on that motion on May 12. This is my ruling on that motion.

                              D.      Parties’ Contentions

       Count I of the Complaint seeks specific performance of Defendant‟s obligations

under the Confidentiality Provision. Count II seeks unspecified compensatory damages

for economic harm that Miele allegedly caused UtiliSave. In support of her motion to

                                           10
dismiss the Complaint in its entirety, Miele contends that the contractual provision from

which the Plaintiff‟s cause of action arises is invalid and unenforceable for two reasons.

First, she asserts that the only reasonable interpretation of the Assignment Agreement is

that, by its plain terms, the agreement terminated all of her obligations under the

Confidentiality Provision for all purposes as of July 12, 2012. Second, Miele argues that,

even if the Assignment Agreement did not terminate her obligations under the

Confidentiality Provision, that provision itself is unenforceable because it is overbroad

and unreasonable. Next, Defendant contends that the Complaint fails to plead any facts

that, if true, would prove Miele breached the Confidentiality Provision. Finally, Miele

avers that UtiliSave failed to plead damages adequately, and, in any event, the contractual

remedies upon which Plaintiff relies were terminated by the Assignment Agreement.

       In opposing Defendant‟s motion to dismiss, UtiliSave contends that the

Confidentiality Provision explicitly states that it will “survive the termination of the

Company and . . . continue to be binding on a Member following the termination of [her]

interest in the Company.” In addition, Plaintiff denies Miele‟s assertion that it is seeking

to enforce the Confidentiality Provision as a de facto non-compete or non-solicitation

covenant and maintains that, in any event, such a fact-intensive issue cannot be resolved

on a motion to dismiss. Finally, Plaintiff argues that the Complaint not only pleads facts

sufficient to prove that a breach has occurred already, but also demonstrates through

language in the LLC Agreement that UtiliSave is entitled to equitable and monetary

remedies for any such breach or threatened breach.



                                          11
                                   II.      ANALYSIS

       For this Court to conclude that certain of Miele‟s actions violated UtiliSave‟s

rights, it is first necessary to identify the source or sources of the rights that Plaintiff

seeks to enforce. The Complaint refers only to the LLC Agreement and neither quotes

nor mentions the terms of Miele‟s Employment Agreement, which expired by its terms

on January 1, 2008.21 Alternatively, Plaintiff presumably could have sought relief for

alleged violations of its rights arising from the fact of Miele‟s employment, which

continued until 2014, but there are no allegations in the Complaint or even the briefing to

that effect. Thus, I find that the Complaint and Plaintiff‟s briefing seek only to enforce

its rights as provided for in the LLC Agreement. Accordingly, I limit my analysis to

UtiliSave‟s rights stemming from that document.

                              A.         Standard of Review

       Pursuant to Rule 12(b)(6), this Court may grant a motion to dismiss for failure to

state a claim if a complaint does not assert sufficient facts that, if proven, would entitle

the plaintiff to relief. The Supreme Court has made clear that “the governing pleading

standard in Delaware to survive a motion to dismiss is reasonable „conceivability.‟”22

That is, when considering such a motion, a court must “accept all well-pleaded factual

allegations in the Complaint as true, . . . draw all reasonable inferences in favor of the


21
       Employment Agreement § 2.01 (“Commencing on [January 1, 2006], through the
       earlier of (a) January 1, 2008 and (b) the termination of your employment as
       provided in Article III below (the “Contract Period”).)
22
       Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 537
       (Del. 2011) (footnote omitted).

                                            12
plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably

conceivable set of circumstances susceptible of proof.”23

       This reasonable “conceivability” standard asks whether there is a “possibility” of

recovery.24 If the well-pled factual allegations of the complaint would entitle the plaintiff

to relief under a reasonably conceivable set of circumstances, the court must deny the

motion to dismiss.25     The court, however, need not “accept conclusory allegations

unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-

moving party.”26 Moreover, failure to plead an element of a claim precludes entitlement

to relief and, therefore, is grounds to dismiss that claim.27

       Generally, the Court will consider only the pleadings on a motion to dismiss under

Court of Chancery Rule 12(b)(6). “A judge may consider documents outside of the

pleadings only when: (1) the document is integral to a plaintiff‟s claim and incorporated

in the complaint or (2) the document is not being relied upon to prove the truth of its

contents.”28 Thus, if documents that are integral to and incorporated by reference into



23
       Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002)).
24
       Id. at 537 & n.13.
25
       Id. at 536.
26
       Price v. E.I. duPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011) (citing
       Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)).
27
       Crescent/Mach I P’rs, L.P. v. Turner, 846 A.2d 963, 972 (Del. Ch. 2000) (Steele,
       V.C., by designation).
28
       Allen v. Encore Energy P’rs, 72 A.3d 93, 96 n.2 (Del. 2013).

                                            13
plaintiff‟s complaint effectively negate the claim as a matter of law, dismissal is

appropriate.29

       Here, to adequately plead a claim for breach of contract, UtiliSave must plead

facts sufficient to support a reasonable inference that: (1) Miele is bound by a valid,

enforceable contract; (2) she breached her obligations under the terms of that contract;

and (3) Plaintiff suffered damages.30      Defendant challenges the sufficiency of the

Complaint as to each of these three elements.

           B.      Is the Confidentiality Provision Valid and Enforceable?

       The interpretation of the Confidentiality Provision is a question of law.31

“[D]efendants are not entitled to dismissal under Rule 12(b)(6) unless the interpretation

of the contract on which their theory of the case rests is the „only reasonable construction

as a matter of law.‟”32      Here, Defendant‟s first theory of the case rests on her

interpretation that the Assignment Agreement plainly terminated all aspects of the LLC

Agreement, including the Confidentiality Provision. If there is more than one reasonable



29
       Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001).
30
       eCommerce Indus., Inc. v. MWA Intelligence, Inc., 2013 WL 5621678, at *13
       (Del. Ch. Sept. 30, 2013).
31
       See, e.g., Seidensticker v. Gasparilla Inn, Inc., 2007 WL 4054473, at *2 (Del. Ch.
       Nov. 8, 2007) (citing HIFN, Inc. v. Intel Corp., 2007 WL 1309376, at *9 (Del. Ch.
       May 2, 2007)); see also AHS N.M. Hldgs., Inc. v. Healthsource, Inc., 2007 WL
       431051, at *3 (Del. Ch. Feb. 2, 2007) (“Under general principles of contract law,
       interpretation of contractual language is purely a question of law.”).
32
       Kahn v. Portnoy, 2008 WL 5197164, at *3 (Del. Ch. Dec. 11, 2008) (quoting
       VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 615 (Del. 2003)).

                                          14
construction of contractual language, then the contract is ambiguous.33          Contractual

language, however, “is not ambiguous simply because the parties disagree on its

meaning.”34 Instead, the court will apply standard principles and canons of construction

in construing the contract.

       Delaware follows the objective theory of contracts “under which a contract is

construed as it would be understood by an objective, reasonable third-party.”35 “Where

contract language is „clear and unambiguous,‟ the ordinary and usual meaning of the

chosen words will generally establish the parties‟ intent.”36 Ambiguity exists “when the

provisions in controversy are reasonably or fairly susceptible [to] different interpretations

or may have two or more different meanings.”37 “Under general principles of contract

law, a contract should be interpreted in such a way as to not render any of its provisions

illusory or meaningless.”38 “Contract terms are not read in isolation, but must be read in



33
       VLIW Tech., 840 A.2d at 615 (“Ambiguity exists „when the provisions in
       controversy are reasonably or fairly susceptible of different interpretations.‟”
       (quoting Vanderbilt Income & Growth Assocs. v. Arvida/JMB Managers, Inc., 691
       A.2d 609, 613 (Del. 1996))).
34
       E.I. du Pont de Nemours & Co., Inc. v. Allstate Ins. Co., 693 A.2d 1059, 1061
       (Del. 1997).
35
       Matthew v. Laudamiel, 2012 WL 2580572, at *5 (Del. Ch. June 29, 2012).
36
       W. Willow–Bay Court, LLC v. Robino–Bay Court Plaza, LLC, 2007 WL 3317551,
       at *9 (Del. Ch. Nov. 2, 2007), aff’d, 985 A.2d 391 (Del. 2009).
37
       Rhone–Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196
       (Del. 1992) (citation omitted).
38
       Sonitrol Hldg. Co. v. Marceau Investissements, 607 A.2d 1177, 1183 (Del.1992).

                                           15
the context of the contract and in light of the Parties‟ reasonable expectations going into

that agreement.”39

     1.     Did the Assignment Agreement terminate the Confidentiality Provision?

          As the moving party, Miele has the burden of showing hers is the only reasonable

interpretation.    Because I find both Defendant‟s and Plaintiff‟s interpretations are

reasonable, Defendant has failed to carry this burden.

          Defendant‟s contention that the Confidentiality Provision terminated when she

assigned her LLC Interest back to UtiliSave in August 2012 arguably is reasonable. The

Assignment Agreement defines Miele‟s LLC Interest to be her “membership interest in

UtiliSave, together with certain rights, interests and obligations” and provides that Miele

“has been required by Court Order to assign and transfer the LLC Interest to [the

Company].”40 It also provides that Miele‟s “Membership Interest (as defined in the

[LLC] Agreement) shall automatically terminate, and the internal records of UtiliSave

shall be updated to reflect the Membership Interest of [Miele] as having been liquidated,

terminated and retired for all purposes.”41          Finally, as Defendant points out, the

Assignment Agreement does not preserve or carve out explicitly the Confidentiality

Provision, or any other provision for that matter.




39
          Seibold v. Camulos P’rs LP, 2012 WL 4076182, at *9 (Del. Ch. Sept. 17, 2012).
40
          Assignment Agreement, Recitals B-C.
41
          Assignment Agreement § 1.

                                           16
       Miele also presents a colorable argument that the drafting parties‟ inclusion of the

word “obligations” in the definition of LLC Interest evidences their intent for all of her

obligations under the Assignment Agreement, including the Confidentiality Provision, to

terminate “for all purposes.” If UtiliSave had intended for any obligations to survive

termination, they easily could have drafted specific language to carve them out of the

Assignment Agreement. Thus, I decline Plaintiff‟s invitation to apply selectively the

expressio unius est expressio alterius canon to find that Section 2 of the Assignment

Agreement only terminated Defendant‟s financial obligations under the LLC Agreement.

Defendant argues that this would create surplusage and lead to the absurd result that all of

Defendant‟s other obligations under the LLC Agreement also survived.                Plaintiff

responds to this argument, in part, by contending that the recitals must be ignored

because they are not contract terms. “Generally, recitals are not a necessary part of a

contract,” but they can be useful to explain the intended meaning of other terms. 42 Here,

the recitals appear to include substantive, definitional language that is consistent with the

Assignment Agreement and should not be ignored. Nevertheless, I also consider it

reasonably conceivable that the parties intended Section 2 to be a “belt and suspenders”

confirmation that Miele owes no further financial obligations under the LLC Agreement.

       UtiliSave‟s interpretation that the Confidentiality Provision survived termination is

also reasonable. The question before me is whether the Assignment Agreement was



42
       Bennett v. Lally, 2014 WL 4674623, at *6 (Del. Ch. Sept. 5, 2014); New Castle
       Cty. v. Crescenzo, 1985 WL 21130, at *3 (Del. Ch. Feb. 11, 1985).

                                           17
intended to terminate Miele‟s obligations under the Confidentiality Provision

notwithstanding the Confidentiality Provision‟s plain language that it would survive such

termination. UtiliSave argues that the Assignment Agreement did not terminate the LLC

Agreement, but is a superseding contract with independent rights that must be reconciled

with the LLC Agreement.43 Because I find that UtiliSave‟s plain language reading of the

Confidentiality Provision is reasonable, however, I do not consider here whether or to

what extent the Assignment Agreement superseded the LLC Agreement in its entirety.

       Thus, I conclude that both interpretations are reasonable and that the resulting

ambiguity is incapable of reconciliation at this stage of the proceedings. Here, the plain

language of the provisions at issue is reasonably susceptible of two interpretations, each

favoring a different party: the Confidentiality Provision states that it survives termination

of the Company and Miele‟s interest and the Assignment Agreement states that it

terminates the LLC Agreement without clarifying whether that includes the

Confidentiality Provision or not. Because it is reasonably conceivable that Plaintiff‟s

interpretation will prevail, I assume that interpretation is correct for the balance of this

opinion.

       Before moving on, I address briefly Miele‟s argument that equity requires any

ambiguity in the Assignment Agreement to be construed against UtiliSave as the drafter,


43
       A new contract relating to the subject matter of the former agreement does not
       destroy the obligation of the former agreement, except as it is inconsistent
       therewith, unless it is shown that the parties intended the new contract to
       supersede the old contract entirely. See Lee Builders, Inc. v. Wells, 92 A.2d 710,
       715 (Del. Ch. 1952).

                                           18
rather than against her, the minority member who involuntarily assigned and transferred

her interest back to the Company for no consideration. At this stage, I consider it

premature to construe the Assignment Agreement against UtiliSave as the drafter or to

assume that Miele received no consideration. The dissolution proceedings followed a

dispute between Steifman and Khenin and were conducted by a liquidating trustee.

Although Miele was not a party to those proceedings, I cannot determine on this record

whether she did, or at least had an opportunity to, contribute to the drafting of the

Assignment Agreement.       For example, Khenin objected to the trustee utilizing an

assignment of membership interests and argued that the trustee should conduct an asset

sale instead.44 Finally, it is reasonably conceivable that, on a more developed record,

Plaintiff‟s interpretation will be the only reasonable interpretation, making the application

of contra proferentem inappropriate and unnecessary.45

       2.      Is the Confidentiality Provision overbroad and unreasonable?

                     a.       Validity as to Miele’s alleged breach

       For UtiliSave to survive a motion to dismiss, it must assert a claim for breach of

contract. As discussed infra, UtiliSave pled adequately at least one non-conclusory

breach of the Confidentiality Provision. That is, it is reasonable to infer from the facts

alleged in the Complaint that Miele obtained UtiliSave‟s confidential client contact



44
       Report and Plan of Distribution 7 n.4.
45
       See Zimmerman v. Crothall, 62 A.3d 676, 698 (Del. Ch. 2013) (applying contra
       proferentem, a rule of “last resort,” on a complete factual record established at
       trial).

                                           19
information regarding NYUMC during the six years she was a Member and that she set

up a meeting using that information for the purpose of competing with UtiliSave.

       I am not persuaded that there is anything overbroad or unenforceable about the

LLC Agreement as to this claim. First, the Confidentiality Provision contains terms that

appear to be aimed at preserving Miele‟s ability to compete reasonably by, for example,

carving out information “generally known to the public” or obtained by Miele before her

association with UtiliSave.46 Second, the alleged breach occurred just over two years

after Miele ceased to be a Member. Thus, it is reasonable to infer that the information

was not stale at that time. Third, I am convinced that UtiliSave reasonably could show

that enforcing the Confidentiality Provision against Miele protects UtiliSave‟s legitimate

economic interests and does not unduly burden Miele. Finally, the parties appear to be

competing in the same geographic area.

        Therefore, I conclude it is reasonably conceivable that the Confidentiality

Provision is not overbroad or unreasonable as to Miele‟s well-pled breach through the use

of UtiliSave‟s confidential client contact information.



46
       UtiliSave alleges the information in question is not generally known. As
       discussed infra, this is a fact issue incapable of resolution at this stage. I also find
       unpersuasive Miele‟s reliance on Seibold for the proposition that the
       Confidentiality Provision does not apply to her because she did not obtain the
       information at issue in her capacity as a Member, but as an employee. In Seibold,
       after a trial on the merits, the court found no support in the evidence that Seibold
       had used confidential information to contact prospective clients. In addition, the
       employment contract there was governed by New York law. Seibold, 2012 WL
       4076182, at *11, *14. Thus, Seibold is inapposite in the context of Defendant‟s
       motion to dismiss.

                                            20
                          b.     Validity as a matter of law

      I also am not persuaded by Miele‟s argument that the Confidentiality Provision as

a whole is unenforceable as a matter of law. Miele contends that the Confidentiality

Provision is invalid and unenforceable as a matter of law because UtiliSave seeks to

convert a purportedly perpetual confidentiality clause into perpetual non-compete and

non-solicitation obligations. In support of her argument, Miele suggests the following

syllogism:

             To be enforceable, non-competition and non-solicitation
             obligations must be reasonable in geographic scope and
             temporal duration, advance a legitimate economic interest of
             the party seeking its enforcement, and survive a balancing of
             the equities. UtiliSave seeks to enforce a “Perpetual
             Confidentiality Clause” that lacks geographic and temporal
             limitations, does not advance a legitimate economic interest,
             and unreasonably burdens Miele. Therefore, the Perpetual
             Confidentiality Clause is invalid and unenforceable as a
             matter of law.

      UtiliSave overplays its hand by describing the Confidentiality Provision as

“perpetual” throughout its brief, although not to the extent urged by Miele. If UtiliSave

intends “perpetual” to mean the Confidentiality Provision would survive the termination

of the Company and of Miele‟s Interest, I determined supra that such an outcome is

reasonably conceivable. But, if UtiliSave intends “perpetual” to also mean that the

Confidentiality Provision prohibits Miele from using or disclosing UtiliSave‟s

confidential information in perpetuity, that is far less clear.47 In fact, not only does



47
      It is unclear, for example, whether UtiliSave has alleged it has something here that
      deserves “perpetual” protection. In that regard, the Coke formula comes to mind,
                                         21
“UtiliSave readily acknowledge[] Defendant‟s right to lawfully engage in competitive

activity,” but the LLC Agreement itself limits the temporal duration of the

Confidentiality Provision to the time period in which UtiliSave continues its line of

business. Thus, I disagree with Miele‟s characterization of UtiliSave‟s argument and

instead interpret UtiliSave to be alleging that the nature of some of UtiliSave‟s

confidential information is such that Miele could not work for a competitor or compete

with UtiliSave without breaching the Confidentiality Provision.

       Despite clear differences between confidentiality and non-competition provisions,

confidentiality provisions begin to operate more like non-competes in an inevitable

disclosure situation. Although the facts here are far less egregious, the facts of W.L. Gore

& Associates, Inc. v. Wu provide a useful example of inevitable disclosure.48 There, after

the defendant, Wu, admitted to allegations that, among many other things, he had

breached contractual non-compete and confidentiality obligations owed to his former

employer and the plaintiff, Gore, the court entered a Consent Judgment “permanently

enjoin[ing] Wu from disclosing or using any confidential, proprietary or trade secret



       but even in that case the term “perpetual” would depend on the formula continuing
       to be secret and valuable, which it apparently continues to be today. The more the
       information in question approaches or can be considered being a trade secret, the
       longer the period of enforced confidentiality is likely to be. Here, UtiliSave has
       pled sufficient facts that at least some of its information, such as the GRT Process,
       is conceivably in that category. I cannot say on the current record that, as a matter
       of law, the Confidentiality Provision is reasonable or unreasonable, but to defeat a
       motion to dismiss on that basis, UtiliSave only has to show that it may be
       reasonable, not that it definitively is.
48
       2006 WL 2692584 (Del. Ch. Sept. 15, 2006).

                                          22
research, information, know-how, or material of Gore that Wu worked on or with during

his employment with Gore.”49 After a trial on the merits as to whether and to what

extent additional injunctive relief would be necessary, the court concluded that, “if [Wu]

were to work at another company having polymer technology or products similar to

Gore‟s, there is a significant risk that Wu would disclose Gore trade secrets,

notwithstanding the Consent Judgment.”50 In support, the court found that “Wu cannot

„unlearn‟ what he learned while working at Gore. If he is allowed to work with Listed

Polymers, his extensive knowledge would almost certainly filter into his work and result

in disclosure of Gore trade secrets.”51 On what were admittedly far more egregious facts

than those alleged here, the court entered a ten-year injunction preventing Wu from

engaging in a wide range of conduct related to his activities at Gore.

       UtiliSave advances a colorable inevitable disclosure argument, which alleges that

Miele knew the Company‟s confidential GRT Process and, in attempting to compete with

UtiliSave, would inevitably use or disclose their trade secrets.52 First, the Complaint

alleges that Miele had access to and high level knowledge of valuable, confidential

information while a Member and employee of UtiliSave. Although it is not a breach



49
       Id. at *1.
50
       Id. at *13.
51
       Id. at *14.
52
       The Complaint alleges that “it is implausible that Miele could provide auditing
       utility services comparable to UtiliSave without divulging or using UtiliSave‟s
       confidential information.” Compl. ¶ 37.

                                           23
simply to know this information, whether Miele knows it is a factual issue that UtiliSave

conceivably could prove at trial. I find such an inference is reasonable. Second, the

Complaint alleges that the GRT Process and client contact information are valuable and

confidential. Miele avers that most elements of the GRT Process and the identities of

UtiliSave‟s clients are publicly available. Whether the components of an alleged trade

secret are generally known or ascertainable, however, is also a fact-intensive question

that is ill-suited for determination at the pre-discovery stage.53 Further, for purposes of

the pending motion, I need not decide whether the identities of UtiliSave‟s clients are

publicly known, because I have concluded that UtiliSave adequately has alleged that their

detailed contact information regarding a particular client is valuable and protected.

Finally, whether Miele can compete with UtiliSave without using or disclosing what she

knows presents yet another factual issue.

      UtiliSave also has alleged enough facts that, under reasonably conceivable

circumstances, enforcing the Confidentiality Provision against Miele would advance

UtiliSave‟s legitimate economic interests without unduly burdening Miele. If this Court

enjoined Miele from using UtiliSave‟s trade secrets, the injunction likely would be

limited to a period of time long enough to enable Miele or her agents to develop the trade




53
      Savor, 812 A.2d at 897. Even assuming the general elements of the GRT Process
      are publicly known, however, that does not rule out the possibility of a trade secret
      or proprietary, confidential information. For example, there may be dozens of
      utility audit processes, but UtiliSave alleges its process is the best and most
      efficient.

                                            24
secrets by legitimate means.54 These allegations raise a factual dispute as to Miele‟s

knowledge of UtiliSave‟s GRT Process, whether she could compete with UtiliSave

without using or disclosing that knowledge, and how long an injunction should last.

      Thus, regardless of which test I apply, Miele‟s arguments depend on factually

intensive issues incapable of resolution on a motion to dismiss.55 At this preliminary

stage, I cannot find here that the Confidentiality Provision is invalid as a matter of law

because it lacks a temporal limit; assessment of that question must await the development

of a more complete factual record. Miele‟s alleged breach occurred just over two years

after the Assignment Agreement terminated the LLC Agreement, so her burden is to

show that under no reasonably conceivable circumstances could UtiliSave prove that the

Confidentiality Provision survived more than two years. She has not done so.

              C.      Did Miele Breach the Confidentiality Provision?

       Drawing all reasonable inferences in favor of Plaintiff, it is reasonably

conceivable that Miele breached the Confidentiality Provision. Defendant argues that



54
      See Merck & Co. v. SmithKline Beecham Pharm. Co., 1999 WL 669354, at *25
      (Del. Ch. Aug. 5, 1999), aff’d, 746 A.2d 277 (Del. 2000) and aff’d, 766 A.2d 442
      (Del. 2000) (“An injunction should last for as long as is necessary, but no longer
      than is necessary, to eliminate the commercial advantage or „lead time‟ with
      respect to good faith competitors that a person has obtained through
      misappropriation.” (quoting UNIFORM TRADE SECRETS ACT (U.L.A.) § 2
      Comments at 450 (1979))); Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210, at *28
      (Del. Ch. July 22, 2015) (limiting an injunction to approximate the amount of time
      the defendant would have been subject to restrictive covenants after the breach at
      issue).
55
      Savor, 812 A.2d at 897 (“The short answer to these arguments is that, at this stage
      of the proceedings, Savor gets the benefit of all favorable inferences.”).

                                          25
UtiliSave fails to support its conclusory allegations of Miele‟s purported breach with any

facts indicating that Miele‟s alleged activities will result in her “using” or “disclosing”

UtiliSave‟s confidential information. The Complaint puts three categories of confidential

information at issue: the GRT Process, UtiliSave‟s billing records, and UtiliSave‟s client

list. Plaintiff failed to plead non-conclusory facts, however, that, if true, would prove

Miele actually breached the Confidentiality Provision—with one exception.

       Plaintiff alleges that on February 9, 2015, Steifman learned from a high-level

source within NYUMC, a longstanding and valuable client of UtiliSave, that Miele

solicited him for NYUMC‟s utility auditing business and that he agreed to meet with

Miele for that purpose. Defendant protests that “[t]he one meager Complaint allegation

UtiliSave relies on is that Ms. Miele‟s purported solicitation of NYUMC „demonstrates

that she already is using UtiliSave‟s confidential information,‟ but UtiliSave fails to

allege how, when or why this unreasonable inference is supported.” 56 I disagree. In my

view, no such additional allegation is necessary.       Based on the allegations in the

Complaint, it is reasonable to infer: (1) that Miele knew who to contact at NYUMC to

solicit utility auditing business from working at UtiliSave for over ten years, and being a

Member of the Company from 2006 to 2012; (2) that the information regarding that

contact was valuable Confidential Information of UtiliSave; and (3) that Miele used that

information to benefit her fledgling competing business.




56
       Def.‟s Reply Br. 10 (emphasis original).

                                          26
       Defendant further argues that this allegation is insufficient because the Complaint

does not allege clearly that a meeting actually took place. Again, no such additional

allegation is necessary. Taking the factual allegations as true, Miele used UtiliSave‟s

confidential information for her own account, which the Confidentiality Provision

expressly prohibits. Therefore, I conclude that the Complaint pleads adequately that

Miele breached the Confidentiality Provision by using UtiliSave‟s client list.

                         D.       Did UtiliSave Suffer Harm?

       I find UtiliSave pled sufficient facts to support the equitable remedy sought in

Count I. UtiliSave failed, however, to plead facts supporting a reasonable inference that

Miele‟s breach caused the Company economic harm.            Thus, Defendant‟s motion to

dismiss must be granted as to Count II.

       My analysis of this issue is framed by the well-pled allegations in the Complaint.

As explained supra, UtiliSave‟s Complaint will survive Miele‟s motion to dismiss

because it is reasonably conceivable that Miele used UtiliSave‟s client list, which the

Confidentiality Provision defines as Confidential Information, for her own account. But

the Complaint otherwise fails to plead facts supporting an inference that Miele‟s breach

caused UtiliSave economic harm. For example, the Complaint fails to plead that Miele‟s

alleged breach caused UtiliSave to increase its spending on marketing or to offer its

existing customers a discount to retain their business or that UtiliSave lost any business

or incurred any additional expenses of any kind. To the contrary, UtiliSave‟s bald

assertion that “Miele‟s ongoing violations of the Confidentiality [Provision] has caused



                                          27
and will continue to cause UtiliSave economic harm . . .”57 is a perfect example of a

conclusory allegation that this Court may ignore on a motion to dismiss.58

       Nevertheless, Defendant‟s motion to dismiss must be denied as to Count I.

Section 8.07 of the LLC Agreement states:

              [t]he Members acknowledge that if any of the Members
              should breach or threaten to breach any provisions of this
              Agreement, the Company will suffer irreparable injury; and
              therefore the Company and such non-breaching Members
              may . . . seek from any court of competent jurisdiction
              specific performance of the provisions of this Agreement or
              injunctive relief against any act which would violate any of
              its provisions.59

       UtiliSave pled that it faces an imminent threat of irreparable harm because Miele

has solicited utility auditing work from UtiliSave‟s contact at NYUMC. It is reasonably

conceivable that Miele‟s alleged use of contact information in the Company‟s client list

for her own account breached a purportedly valid, enforceable contract.             Because

UtiliSave pled the existence of an agreement between the parties under which such a

breach would cause irreparable injury justifying specific performance of the provision at

issue, I find it is also reasonably conceivable that UtiliSave will prove entitlement to such

specific performance.



57
       Id.
58
       Price, 26 A.3d at 166.
59
       LLC Agreement § 8.07. Because I conclude above that the Complaint pled
       adequately the existence of a valid, enforceable contract, I disregard, for purposes
       of her motion to dismiss, Miele‟s argument that the Assignment Agreement
       terminated UtiliSave‟s contractual remedy.

                                           28
                               III.     CONCLUSION

       For the foregoing reasons, Defendant‟s Motion to Dismiss the Complaint is denied

as to Count I and granted as to Count II.

       IT IS SO ORDERED.




                                            29
