IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

GREG HANEY, AS SELLERS’
REPRESENTATIVE OF CARDLAB, INC.,

Plaintiff,
C.A. No. Nl6C-O3-23l EMD CCLD

V.

BLACKHAWK NETWORK HOLDINGS,
INC.,

Defendant.
ORDER TRANSFERRING MATTER TO COURT OF CHANCERY

Submitted: November 21, 2016
Decided: February 8, 2017

Upon Defendant Blackhawk Network Holdings, lnc. ’s
Motion to Dismissfor Improper Venue

Arthur L. Dent, Esquire, Jaclyn C. Levy, Esquire, Jesse L. Noa, Esquire, Potter Anderson &
Corroon LLP, Charles L. “Chip” Babcock, Esquire, and Lisa A. Powell, Esquire, Jackson
Walker, L.L.P., Houston, Texas. Attorneysfor Greg Hcmey, as Sellers ’ Representative of
Cardlab, lnc.

J on E. Abramczyk, Esquire, D. McKinley Measley, Esquire, Zi-Xiang Shen, Esquire, Morris,
Nichols, Arsht & Tunnell LLP, Bryan J. Wick, Esquire, and J. Sean Lemoine, Wick Phillips
Gould & Martin, LLP, Dallas, Texas. Attorneysfor Blackhawk Network Holdings, Inc.

DAVIS, J.

This declaratory judgement action regarding a purported breach of contract action is
assigned to the Complex Commercial Litigation Division of the Court. Plaintiff Greg Haney, as
sellers’ representative of Cardlab, lnc., brings this action against Defendant Blackhawk Network
Holdings, Inc. (“Blackhawk”). Mr. Haney seeks $1.75 million from the parties’ Escrow
Account. Mr. Haney alleges he is owed the payment because Blackhawk failed to request
payment by the parties’ agreed-upon deadline. Blackhawk moved to dismiss this action for

improper venue. Blackhawk contends the parties’ Merger Agreement and Escrow Agreement

contain forum selection clauses requiring that any suit, no matter the relief sought, had to be filed
in the Court of Chancery.
I. INTRODUCTION

A. FACTUAL BACKGROUI\JI)l

On August 27, 2014, Cardlab, Blackhawk, and non-party BH Lab Merger Corp., a
Blackhawk subsidiary, entered into a Merger Agreement.2 Cardlab and BH Lab Merger Corp.
merged, with Cardlab as the surviving entity.3 The same day, Cardlab, Blackhawk, and Wells
Fargo & Company entered into an Escrow Agreement, with Wells Fargo acting as the Escrow
Agent.4 Blackhawk placed $1.75 million into the escrow account.5 The Escrow Agent had to
distribute all remaining escrow funds to Mr. Haney eighteen months after the Agreements were
signed.6 Mr. Haney was not entitled to the Escrow Funds if, and only if, Blackhawk delivered a
payment request prior to the lS-month expiration date.7

Blackhawk made its first payment request on February 29, 2016.8 Mr. Haney responded
on March 7, 2016, objecting to Blackhawk’s request as untimely.9 On March ll, 2016, the
Escrow Agent advised the parties it was withholding funds pursuant to Section 3.5 of the Escrow

Agreement.'O Blackhawk made a second payment request on March 3 l , 2016.11

 

' Unless otherwise indicated, the following are the Relevant Facts as alleged in the Amended Complaint for
Declaratory Relief (“Amended Complaint” or “Pl.’s Am. Compl.”). For purposes of the Blackhawk’s motion, the
Court must view all well-pleaded facts alleged in the Amended Complaint as true and in a light most favorable to
Mr. Haney. See, e.g., Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 536 (Del.
2011); Doe v. Cedars Acad., LLC, C.A. No. 09C-09-l36 JRS, 2010 WL 5825343, at *3 (Del. Super. Oct. 27, 2010).
2 Pl.’s Am. Compl. Ex. D

3 Id. 11 10.

4 Id. Ex. A.

5 Id. 1[ 14.

6 Id. 11 15.

7 Id.

8 ld. at 1[ 4. See also id. EX B.

9 ]d. Ex. C. at l-2 (“The Indemniflcation Expiration Period expired at midnight on February 26, 2016, which was
eighteen months after August 27, 2014, the date of the Escrow Agreement.”).

‘° Id. 1[ 6. See also id. Ex. A. at Section 3.5 (“If any conflict, disagreement or dispute arises between, among, or
involving any of the parties hereto concerning the meaning or validity of any provision hereunder or concerning any

2

B. PRoCEDURAL BACKGROUND

On March 24, 2016, Mr. Haney filed a declaratory judgment action in this Court.12 He
amended it on April 29, 2016, to reflect Blackhawk’s March 3l, 2016, payment request.13 The
Amended Complaint seeks, among other things, declarations that (i) Blackhawk did not make a
timely request for payment from the Escrow Account, and (ii) Mr. Haney is entitled to all funds
remaining in the Escrow Account. Mr. Haney wants the escrow funds to fund his current lawsuit
against Cardlab,14

On May 25, 2016, Blackhawk filed a Motion to Dismiss (“Motion” or “Def.’s Mot.”)
pursuant to Rule l2(b)(6) of the Superior Court Civil Rules (“Civil Rule l2(b)(6)). On June 22,
2016, Blackhawk filed an amended motion to dismiss under Civil Rule 12(b)(3) and its
Defendant Blackhawk Network Holding, Inc.’s Brief in Support of Motion to Dismiss for
Improper Venue (the “Opening Brief”). On July 22, 2016, Haney filed Plaintiff’ s Answering
Brief in Opposition to Defendant’s Corrected Motion to Dismiss for Improper Venue (the
“Opposition” or “Pl.’s Opp.”). On August 15, 2016, Blackhawk filed its Defendant Blackhawk
Network Holdings, lnc.’s Reply in Support of its Motion to Dismiss for Improper Venue (the
“Reply” or “Def.’s Rep.”). The Court held a hearing on the Motion, the Opening Brief, the
Opposition and the Reply on November 21, 2016, After the hearing, the Court took the Motion

under advisement.

 

other matter relating to this Agreement, or the Escrow Agent is in doubt as to the action to be taken hereunder, the
Escrow Agent may, at its option, retain the Escrow Property until the Escrow Agent (i) a Final Order directing
delivery of the Escrow Property, (ii) receives a written agreement executed by each of the parties involved in such a
disagreement or dispute directing delivery of the Escrow Property, in which event the Escrow Agent shall be
authorized to disburse the Escrow Property in accordance with such Final Order or agreement[.]”).

" [d. at1[ l7. See also id. Ex. D.

'2 Pl.’s Opp. at 3.

13 Id

“‘ ld. at 1[ 8, n. 7 (Greg Haney, as Sellers ’ Representatl've of Cardlab, lnc. v. Blackhawk Network Holdings, lnc.,
C.A. No. 10851-VCN).

After hearing oral argument, and considering the Motion and Opening Brief, the
Opposition, and the Reply, the Court will DENY the Motion to the extent it seeks outright
dismissal of this civil action. The Court will TRANSFER this civil action to the Chancery
Court pursuant to 10 Del. C. § 1902.

II. APPLICABLE STANDARDS OF REVIEW

Upon a motion to dismiss under Civil Rule 12(b)(6), the Court (i) accepts all well-
pleaded factual allegations as true, (ii) accepts even vague allegations as well-pleaded if they
give the opposing party notice of the claim, (iii) draws all reasonable inferences in favor of the
non-moving party, and (iv) only dismisses a case where the plaintiff would not be entitled to
recover under any reasonably conceivable set of circumstances15 However, the Court must
“ignore conclusory allegations that lack specific supporting factual allegations.”16

Superior Court Civil Rule 12(b)(3) governs a motion to dismiss or stay on the basis of
improper venue. The Court should give effect to private agreements’ terms to resolve disputes in
a contractually-designated judicial forum, out of respect for the parties’ contractual
designation17 The Court can grant dismissal prior to discovery, on the basis of affidavits and
documentary evidence, if the plaintiff cannot make out a prima facie case in support of its
position.18 The Court generally will allow the plaintiff to take discovery when the plaintiff

advances a non-frivolous legal argument that would defeat the motion if the facts turn out to be

as alleged.19

 

15 Cem‘ral Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 227 A.3d 531, 536 (Del. 2011); Doe v.
Cea’ars Acaa'emy, 2010 WL 5825343, at *3 (Del.Super. Oct. 27, 2010).

16 Ramunno v. Crawley, 705 A.2d 1029, 1034 (Del. 1998).

'7 Loveman v. Nusmile, lnc., 2009 WL 847655, at *2 (Del. Super. Mar. 31, 2009).

'8 ]d. (citing Simon v. Navellier Series Fund, 2000 WL 1597890, at *4 (Del. Ch.)).

‘9 HealthTrio, lnc. v. Margules, 2007 WL 544156, at *2 (Del. Super.) (citing Simon, 2000 WL 1597890, at *4).

4

III. PARTIES’ CONTENTIONS

Blackhawk contends the parties’ two agreements, read together, mandate Chancery
jurisdiction Further, Blackhawk contends transferring this case to Court of Chancery promotes
efficiency because Haney has already commenced a case against Blackhawk there.

Mr. Haney contends that the forum selection clause is facially invalid. Mr. Haney argues
that the Court has jurisdiction because the Amended Complaint is not seeking equitable relief.
Mr. Haney also contends that litigating the escrow dispute here does not create piecemeal
litigation. Mr. Haney’s also claims that Blackhawk waived its right to challenge venue by failing
to include it in its first Motion to Dismiss, moving, instead, to dismiss pursuant to Civil Rule
12(b)(6), not Civil Rule 12(b)(3)20

IV. DlSCUSSION
A. PARTIES CANNOT CONTRACT FOR EXCLUSIVE COURT OF CHANCERY JURISDICTION

The Court should give effect to private agreements’ terms to resolve disputes in a
contractually-designated judicial forum, out of respect for the parties’ contractual designation.21
The Agreement’s forum selection clause states:

This Agreement shall be governed by and construed in accordance with the

internal laws of the State of Delaware, regardless of the laws that might otherwise

govern under applicable principles of conflicts of law thereof. Each party

irrevocably submits to the exclusive jurisdiction of the Delaware Chancery Court

for the purposes of any suit, action or other proceeding arising out of this

Agreement, any of the other Transaction Documents or any of the Contemplated

Transactions. Each Party agrees to commence any action, suit or proceeding

relating there in the Delaware Chancery Court. Each party further agrees that

service of any process, summons, notice or document by registered mail to such

Party's respective address set forth in Section 11.5 above shall be effective service
of process. Each Party irrevocably and unconditionally waives any objection to

 

20 The Court questioned Blackhawk’s counsel on why relief was initially sought under Civil Rule 12(b)(6) and not
Civil Rule 12(b)(3). The Court is comfortable that Blackhawk made a mistake, subject to excusable neglect,
regarding whether Civil Rule 12(b)(6) or Civil Rule 12(b)(3) should govern, and that counsel may have followed
procedures generally practiced in the Court of Chancery as opposed to this Court.

2' Loveman, 2009 WL 847655, at *2.

the laying of venue of any action, suit or proceeding arising out of this

Agreement, the other Transaction Documents and the Contemplated Transactions

in the Delaware Chancery Court, and hereby further irrevocably and

unconditionally waives and shall not assert by way of motion, defense, or

otherwise, in any such Proceeding, any claim that it is not subject personally to

the jurisdiction of the above named courts, that its property is exempt or immune

from attachment or execution, that the Proceeding is brought in an inconvenient

forum, that the venue of the Proceeding is improper, or that the Agreement or any

other Transaction Documents or the Merger may not be enforced in or by any of

the above named courts.22

Neither parties nor the Court of Chancery can confer equity jurisdiction where it is
unavailable.23 Mr. Haney’s claim must be equitable in nature, and he must not have a valid
remedy at law, in order for the Court of Chancery to retain jurisdiction To the extent the parties
waived Superior Court jurisdiction, the Court finds the Forum Selection Clauses invalid.24
Whether Mr. Haney’s claim can be pursued in the Court of Chancery depends solely on whether
that Court has subject matter jurisdiction
B. COURT oF CHANCERY HAS sUBJECT MATTER JURISDICTION

Blackhawk argues that Mr. Haney’s Amended Complaint falls squarely within equitable
jurisdiction: it is a claim involving fiduciary relations and a claim for specific performance (i.e.,
release the escrow funds).25 Mr. Haney claims his declaratory judgment action is proper here
because he is not seeking equitable relief. The Amended Complaint “seek[s] this Court declare
that Blackhawk failed to make a timely payment request under the terms of the Escrow

Agreement and that Haney is entitled to a distribution of the Base Escrow Amount.”26 Further,

Mr. Haney is “not seeking specific performance because Haney is confident that the Escrow

 

22 Pl.’s Am. Compl., Ex. E (Merger Agreement § 11.6(a)).

23 El Paso Natural Gas Co. v. TransAmerican Natural Gas Corp., 669 A.2d 36, 39 (Del. 1995).

24 See id. at 38 (f`mding a forum selection clause that stated “All actions to enforce or seek damages, specific
performance or other remedy for the alleged breach of this agreement or the operative agreements shall be brought
in the Chancery Court of the State of Delaware” to be facially invalid because private agreements cannot create
exclusive Chancery jurisdiction if Chancery would not have subject matter jurisdiction).

25 See, e.g., Bird v. Ll`da, lnc., 681 A.2d 399, 402 (Del. Ch. 1996).

26 Pl.’s Opp. at 18.

Agent will respect a determination by this Court as to Blackhawk’s failure to comply with the
terms of the Escrow Agreement, whether or not it is ordered to do so.”27
The Court of Chancery has subject matter jurisdiction in three ways: (1) one or more
claim for relief is equitable in character; (2) the plaintiff requests relief that is equitable in nature;
or (3) subject matter jurisdiction is conferred by statute.28 In deciding whether or not equitable
jurisdiction exists, the Court must look beyond the remedies nominally being sought, and focus
upon the allegations of the complaint in light of what the plaintiff really seeks to gain by
bringing his or her claim.29
Blackhawk cites to East Balt LLC v. East Balt US LLC. 30 East Balt involves facts
inverse to the facts of this civil action, ln East Balr, a plaintiff filed a suit in the Court of
Chancery seeking an order compelling an escrow agent to release contested escrow funds.31
Defendant objected to the release, and moved to dismiss plaintiffs claim, arguing the Court of
Chancery lacked subject matter jurisdiction32 Defendant argued that money damages would be
practical and make plaintiff whole.33 Defendant argued specific performance was unnecessary to
satisfy plaintiff34 Further, defendant argued that this Court could grant declaratory relief
regarding rights under a contract, and could thus establish entitlements to the escrow amount.35

The Court of Chancery denied Defendant’s Motion to Dismiss.36 The Court of Chancery

held that it was capable of providing a more “certain, prompt, complete, and efficient” remedy

 

27 ld. at18-19.

28 Candlewood Timber Grp., LLC v. Pan Am. Energy, LLC, 859 A.2d 989, 997 (Del. 2004).
29 [a"

30 2015 WL 3473384 (Del. Ch. May 28, 2015).

3‘ Id. at *3.

32 [d_

33 Id

34 [d

35 ]d_

36 [d

than the Superior Court.37 'l`he Court of Chancery cited an oral ruling in SecNet Holding, LLC v.
Polash. In SecNe/, the plaintiff sought an order compelling a non-party escrow agent to release
funds from an escrow account.38 'f[`he SecNet Court concluded that even if the plaintiff could
obtain a judgment for damages in a law court, it was unclear how the plaintiff could enforce its
judgment “Recourse would fall [back. to Chancery] to enforce the judgment.”39 Therefore,
there was no adequate remedy at law.40

The situation here is similar. The Amended Complaint seeks, in essence, specific
performance Mr. Haney wants the Court to issue declarations as to the rights of Mr. Haney and
Blackhawk regarding the Escrow Account’s remaining funds. If the Escrow Agent does not act
once the Court makes its declarations, Mr. Haney would need another order forcing the Escrow
Agent to disburse disputed escrow funds.

Mr. Haney contends that Wells Fargo will comply with the Court’s Orders. This may or
may not be true. Wells Fargo is not a party to this civil action, Wells Fargo may want to assert
various defenses or claims as to the Escrow Account. Because Wells Fargo is not a party, this
Court would then have to have those defenses or claims fully litigated unless issue or claim
preclusion applied. l\/loreover, if Mr. Haney then wants on order requiring Wells Fargo to act in
its role as Escrow Agent, Mr. Haney would need to go to the Court of Chancery for specific

performance or an affirmative injunction

 

37 [d. (Cltlng S€CN€I‘ HOlding, LLC v. POtaSh, C.A. NO. 7781-VCP, at 34 (D€l. Ch. Apl`. 2, 2013) (TRANSCRIPT)).
38 SecNet, at 33.

39 ld. at 33-34.

40 [d

C. TRANSFERRING To COURT oF CHANCERY PRoMoTEs JUDICIAL EFFlCIENCY

The parties contracted to litigate in the Court of Chancery, if possible. They currently
are.41 Mr. Haney contends that he filed this matter here to obtain the escrow funds to further his
ongoing lawsuit. Mr. Haney argues that this separate lawsuit provides for a more expeditious
way to the fund than a supplemental Chancery lawsuit or amending his Chancery claim.

Mr. Haney filed suit in this Court on March 24, 2016,42 one month after the Court of
Chancery issued its decision denying Defendants’ motion to dismiss.43 At the November 21,
2016 hearing, Mr. Haney presented little reason why this matter should not have been advance in
the Court of Chancery lawsuit. Even if Mr. Haney’s declaratory judgment action constitutes a
legal claim, the Court of Chancery can hear it under the Clean-up Doctrine.44 The Court finds
that having the Court of Chancery hear all claims promotes judicial efficiency.

V. CONCLUSION

For the foregoing reasons, the Court the Court will DENY the Motion to the extent the
l\/lotion seeks outright dismissal of this civil action Instead, the Court will TRANSFER this
civil action to the Chancery Court pursuant to 10 Del. C. § 1902. If, for some reason, the Court

of Chancery decides to not hear this matter under the Clean-Up Doctrine, Mr. Haney may reopen

IT ls So oRDERED. Q/J`
/i, 1a .

Eri’t':` M. Dvavis, Jud§e/

it here.

 

 

41 Haney v. Blackhawk Network Holdings, Inc., 2016 WL 769595 (Del. Ch. Feb. 26, 2016).

42 Plaintist Complaint for Declaratory Relief (Tr. ID 58768450).

43 See Haney, 2016 WL 769595, at *l l.

44 Darby Emergl'ng Markets Fund, L.P. v. Ryan, 2013 WL 6401131, at ’1‘6 (Del. Ch. Nov. 27, 2013) (“Once the

Court determines that equitable relief is warranted, even if subsequent events moot all equitable causes of action or
if the court ultimately determines that equitable relief is not warranted, the court retains the power to decide the legal
features of the claim pursuant to the cleanup doctrine.”).

