      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

COMPOSECURE, L.L.C.,                  )
                                      )
    Plaintiff/Counterclaim Defendant, )
                                      )
    v.                                )           C.A. No. 12524-VCL
                                      )
CARDUX, LLC f/k/a AFFLUENT CARD, LLC, )
                                      )
    Defendant/Counterclaim Plaintiff. )




                          MEMORANDUM OPINION

                        Date Submitted: November 7, 2017
                         Date Decided: February 1, 2018
                        Date Corrected: February 12, 2018

Myron T. Steele, Arthur L. Dent, Christopher G. Browne, POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware; Steven M. Coren, David M. Devito,
KAUFMAN, COREN & RESS, P.C., Philadelphia, Pennsylvania; Attorneys for
Plaintiff/Counterclaim Defendant.

David J. Margules, Elizabeth A Sloan, Erika R. Caesar, Jessica C. Watt, BALLARD
SPAHR, LLP, Wilmington, Delaware; Attorneys for Defendant/Counterclaim Plaintiff.

LASTER, V.C.
       CompoSecure, LLC manufactures and sells metal credit cards. When banks issue

credit cards, they have to purchase the physical cards for their customers. Metal cards cost

more than plastic cards, so issuing banks generally have not been interested in metal cards.

       To promote and sell its metal cards, CompoSecure hired CardUX, LLC, a newly

formed sales organization. The individuals behind CardUX had extensive contacts in the

credit card industry and particular expertise with co-brand arrangements. Under a co-brand

arrangement, a bank that issues credit cards partners with another company, such as an

airline or retailer, to issue a card that bears the marks of both the issuing bank and the

partner. The affiliation helps the issuing bank gain customers. In return, the issuing bank

pays a fee to the co-brand partner.

       CardUX’s principals planned to use their industry contacts to promote metal cards.

They thought co-brand partners could insist on metal cards when contracting with issuing

banks. They also believed that they could significantly increase the overall demand for

metal cards, which would increase CompoSecure’s order volume.

       To govern their relationship, CompoSecure and CardUX entered into a detailed

sales agreement. It specified the efforts that CardUX would make to promote and sell metal

cards. It also provided that CardUX would receive a 15% commission on all sales of

CompoSecure products to a list of “Approved Prospects.” The agreement did not require

that CardUX establish any connection between its efforts and a sale to earn a commission.

Because much of CardUX’s work would involve increasing awareness about metal cards

and influencing consultants and other industry figures, its principals steadfastly refused to

accept any language conditioning their commissions on a connection between their efforts

                                             1
and a sale. CompoSecure ultimately agreed. The resulting bright-line rule created situations

in which each side might receive a windfall. On the one hand, CardUX would receive a

commission for every sale to an Approved Prospect, even if its efforts did not contribute

to the sale. On the other hand, CompoSecure would not have to pay a commission for any

sale to a non-Approved Prospect, even if CardUX’s efforts contributed to the sale.

       When CompoSecure entered into the agreement, its CEO expected that it would take

a year to see new business from Approved Prospects. The CEO anticipated relatively

modest sales growth over the next five years. Instead, just two months after signing,

CompoSecure received a massive order for an Approved Prospect.

       CompoSecure’s CEO immediately realized that CardUX was entitled to a

commission, but she and her management team did not want to pay. They did not believe

that CardUX had done anything to generate the sale, and the size of the commission made

the bright-line arrangement seem unfair. In the immediate aftermath, it was not clear

whether CardUX had contributed to the sale. The evidence at trial demonstrated that the

sale occurred independent of CardUX’s efforts.

       The parties had compromised on smaller issues, and CompoSecure expected

CardUX to agree to a reduced commission given the circumstances surrounding the sale.

Instead, CardUX stood firm on the contract. Hard feelings ensued, and CompoSecure

raised a series of objections to paying the commission. Although some were fairly litigable,

CompoSecure’s witnesses at trial conceded that others lacked any factual basis.

       Six months after signing the sales agreement, CompoSecure claimed that its CEO

lacked authority to sign it. When the agreement was executed, no one questioned its

                                             2
validity, and the contract contained representations stating that it was duly authorized and

constituted a valid and binding obligation. After signing, both sides acted as if it was a

valid contract. But someone on CompoSecure’s side spotted a provision in its limited

liability company agreement that required special approvals for transactions with related

parties. One of CardUX’s principals was a member and manager of CompoSecure when

he signed the sales agreement, so the provision applied.

       CompoSecure sued in this court seeking a declaration that the sales agreement was

invalid. CardUX counterclaimed for its commission.

       This decision agrees that the agreement was a related-party transaction and that

CompoSecure’s CEO did not have actual authority to bind CompoSecure to the contract.

Nevertheless, the agreement is valid and enforceable. Under New Jersey law, which

governs the agreement and all matters arising out of or relating to it, CompoSecure ratified

the agreement by conduct.

       This decision holds that CardUX is entitled to its commission. The plain language

of the sales agreement provides for a commission. New Jersey law permits a court to

consider extrinsic evidence to test a plain-language interpretation. Both the negotiating

history and CompoSecure’s post-contracting actions provide confirmation.

       CompoSecure has objected strenuously that the resulting payment scheme creates

an egregious and one-sided “no efforts” contract that contemplates “pay without

performance,” but neither slogan is accurate. The agreement requires “efforts” and

specifies multiple tasks that CardUX had to perform. The agreement also links pay to

performance by only providing for a commission if a sale to an Approved Prospect takes

                                             3
place. CompoSecure has sole discretion to accept a sale. Unless CompoSecure receives the

benefit of an incremental sale to an Approved Prospect, CardUX does not get paid. What

the agreement does not require is any link between CardUX’s efforts and a particular sale

to an Approved Prospect. CompoSecure may now regret entering into that arrangement,

but that is not a basis for evading a contract. “Parties have a right to enter into good and

bad contracts, the law enforces both.”1

       This decision also rejects CompoSecure’s affirmative defense of unclean hands.

CardUX is entitled to recover its attorneys’ fees and costs under an indemnification

provision in the sales agreement.

                            I.      FACTUAL BACKGROUND

       Trial took place over four days. The parties submitted 533 exhibits and lodged nine

depositions. Nine fact witnesses gave live testimony. The following facts were proven by

a preponderance of the evidence.

A.     CompoSecure

       CompoSecure is a Delaware limited liability company that “manufactures and sells

complex metal and composite cards for the security and financial transaction industries.” 2

John Herslow and his daughter, Michelle Logan, co-founded the business in 2000.3 Logan




       1
           Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010).
       2
           Pre-Trial Order (“PTO”) ¶¶ 1, 3; see also Hollin Tr. 6.
       3
           PTO ¶ 5.

                                               4
began running the business in 2004 and took over as Chief Executive Officer in 2012.4

Herslow remained the Chief Technology Officer.

       Since 2012, CompoSecure has experienced significant growth, largely from sales of

its metal credit card products. “CompoSecure is believed to be the only U.S. based metal

credit card manufacturer, and is one of only two firms in the world with that capability.” 5

An earlier generation of metal credit cards suffered from quality control problems, but

CompoSecure developed a variety of technologies and business practices that solved these

issues. No one else manufactures metal cards of similar quality, giving CompoSecure a

virtual monopoly position in the metal-card market.6

       Banks that issue credit cards purchase the physical cards for their customers. Metal

cards cost far more than plastic cards. Depending on the type, a metal card costs up to

$700.7 A plastic card costs less than $0.50.8

       Because of the price differential and lingering concern about quality, issuing banks

historically resisted purchasing metal cards. JPMorgan Chase (“Chase”) was an exception.

Chase issues CompoSecure’s metal card products to mass-affluent and high-net-worth




       4
           See id. ¶ 6; Logan Tr. 143-145 (describing history of business).
       5
           PTO ¶ 3.
       6
           See Hollin Tr. 112; Logan Tr. 147-49, 155-58.
       7
           Logan Tr. 156.
       8
           Kleinschmidt Tr. 905.

                                                5
customers in its proprietary Sapphire Card program.9 Chase found that its customers liked

the cards, and this preference generated business advantages for Chase, including better

customer retention and higher spend. As Chase ramped up its Sapphire Card program,

CompoSecure found itself in the happy position of selling more metal cards, but with Chase

representing an increasing proportion of CompoSecure’s sales.

      CompoSecure also sold cards indirectly through personalization partners, who acted

as middlemen by ordering cards from CompoSecure, adding features of their own, then

selling the cards to an issuing bank.10 CompoSecure gave personalization partners a 15%

discount on their card purchases.11 CompoSecure viewed the discount as the functional

equivalent of a 15% commission for selling its cards.12

B.    CompoSecure Seeks Outside Capital.

      In 2013, CompoSecure’s owners “hired a business brokerage . . . to explore a

potential sale of the Company.”13 One interested investor was LLR Partners, a private




      9
        See Logan Tr. 151-56 (describing CompoSecure’s metal card products and
Chase’s use of them in its Sapphire Card program).
      10
           See id. at 159-61 (explaining role of personalization partners).
      11
           Id. at 192.
      12
           JX 67 at 1.
      13
           PTO ¶ 8; see also Hollin Tr. 8; Logan Tr. 165-66.

                                               6
equity firm based in Philadelphia.14 Mitchell Hollin, a partner at LLR, led the team for the

CompoSecure investment.15

       Hollin asked Kevin Kleinschmidt to help evaluate the investment.16 Kleinschmidt

was a former credit-card executive who had extensive experience with co-brand

relationships. This concept involves an issuing bank affiliating with a partner to issue a

credit card that bears the marks of both the issuing bank and the partner. The card typically

grants the holder benefits associated with the partner, such as reward points or a discount

on the partner’s products. A classic example is an airline credit card that rewards the holder

with frequent flyer miles. By affiliating with a partner, an issuing bank can use the partner’s

market appeal to sign up customers. In return, the issuer pays the partner a fee.17

       Kleinschmidt had worked with co-brand relationships throughout his career. In

1999, he joined First USA, a credit-card bank that pioneered the sale of cards through co-

branding.18 When First USA’s CEO, Richard Vague, left to co-found Juniper Bank,

Kleinschmidt joined him as Juniper’s director of strategic planning. Barclays Bank later

acquired Juniper, which became the cornerstone of its credit card operations in the United




       14
            PTO ¶ 9; see also Hollin Tr. 6-7.
       15
            Hollin Tr. 6.
       16
            PTO ¶ 12; see also JX 3 at 2.
       17
            See Flanagan Tr. 440-41; Frantz Tr. 681-82; Kleinschmidt Tr. 870-71; Logan Tr.
162-63.
       18
            Kleinschmidt Tr. 858-60.

                                                7
States. Kleinschmidt developed a marketing group for Barclays that handled co-brand

programs.19 In 2007, Kleinschmidt left Barclays and joined Vague and other former

members of the team from First USA and Juniper at Energy Plus, a start-up that pioneered

co-branding in the energy industry.20 After they sold Energy Plus, Kleinschmidt decided

to take a break from full-time work.21

       Kleinschmidt immediately flagged CompoSecure’s customer concentration with

Chase.22 In 2013, Chase accounted for roughly 75% of CompoSecure’s revenue.23 Well

over half of the Chase business came from its proprietary Sapphire Card.24 CompoSecure’s

dependence on Chase created multiple layers of risk. Chase could determine unilaterally

whether to stop buying metal cards or to reduce its purchases,25 and Chase would not agree




       19
            Id. at 860-68.
       20
            Id. at 874-77.
       21
         Vague formed Gabriel Investments, a private investment firm, to manage his
wealth. Kleinschmidt and others who had worked with Vague also invested in deals
through Gabriel Investments. See Flanagan Tr. 528-30; Kleinschmidt Tr. 878-80.
       22
            JX 5 at 1; Hollin Tr. 11.
       23
            JX 6 at 1. In 2015, sales to Chase still represented 66% of revenue. Logan Tr. 167.
       24
            Kleinschmidt Tr. 900-01.
       25
            Hollin Tr. 28, 122; Kleinschmidt Tr. 903.

                                                8
to long-term purchase commitments.26 Chase also used its buying power to demand

discounts.27

       Kleinschmidt identified CompoSecure’s small sales staff as a relative weakness.

The group’s primary contacts were with personalization partners or low-level managers at

issuing banks. The group had not established relationships with key decision-makers. They

also had no strategy for educating co-brand partners about metal cards and using the

partners’ influence to spur demand.28

       After receiving early indications of investor interest, CompoSecure delayed the

process. The company was experiencing significant growth, and its owners hoped to

achieve a higher valuation after another year of results.29

       Discussions and due diligence resumed in mid-2014.30 LLR made a proposal in

October 2014, and negotiations ensued.31 LLR ultimately paid $100 million in return for

60% of CompoSecure’s equity.32 Hollin asked Kleinschmidt and Vague to participate in




       26
            Kleinschmidt Tr. 900-03.
       27
            Hollin Tr. 28; Logan Tr. 169.
       28
            Kleinschmidt Tr. 907-08.
       29
            Logan Tr. 166.
       30
            PTO ¶ 14; see also Hollin Tr. 14-15.
       31
            PTO ¶ 16.
       32
         Hollin Tr. 31. The investment was leveraged. LLR and its co-investors invested
$30 million in equity and raised another $70 million in debt. Id.

                                              9
the transaction by investing $500,000 each, which they did.33 Hollin also asked

Kleinschmidt to serve as a member of the Board of Managers (the “Board”) that would

govern CompoSecure after LLR’s investment closed. Kleinschmidt agreed.34

      Hollin even asked Kleinschmidt to consider taking the CEO job.35 Kleinschmidt

declined, recommending instead that CompoSecure consider hiring Paul Frantz in a

capacity that could lead to the CEO role.36 Frantz was a former credit-card marketing

executive with American Express and First USA who became one of the first employees

at Juniper.37 While at Juniper, and later at Barclays, Frantz ran the customer acquisition

effort and marketed to co-brand partners. He followed Vague and Kleinschmidt to Energy

Plus, where he was chief marketing officer.38

      Frantz sent his resume to Hollin.39 He signed a non-disclosure agreement, reviewed

confidential information, and met with Herslow and Logan.40 He ultimately declined to




      33
           PTO ¶ 27; see also Kleinschmidt Tr. 884-86.
      34
           PTO ¶ 30; see also Hollin Tr. 32-33.
      35
           Hollin Tr. 20.
      36
           JX 25 at 1; Frantz Tr. 661; Hollin Tr. 21.
      37
           Kleinschmidt Tr. 867.
      38
           Frantz Tr. 657-58.
      39
           JX 27; Frantz Tr. 664-65, 847.
      40
           Frantz Tr. 664-65; Logan Tr. 297-99.

                                              10
accept a full-time position, citing CompoSecure’s location and the importance of “a very

flexible work environment/situation.”41

       During this litigation, CompoSecure made an issue out of the description of Frantz’s

background that appeared in CardUX’s initial proposal, which said he had held a senior

position at Chase.42 The statement was imprecise; it referred to Frantz’s position at First

USA/Bank One, which Chase acquired after he left.43 The reference was not materially

misleading, and Logan and Herslow had Frantz’s resume, which did not refer to Chase.44

C.     CardUX

       Although neither Kleinschmidt nor Frantz wanted to work for CompoSecure full-

time, both saw an opportunity to expand CompoSecure’s sales. Their basic strategy was to

convince co-brand partners “to ask for/demand a metal card.”45 For the issuer, a metal card

represents a cost, but for the co-brand partner, it offers a way to distinguish its card program

from others, particularly for upscale customers. Kleinschmidt and Frantz believed that,

when an issuer solicited a co-brand partner’s business or when the co-brand partner’s

contract came up for renewal, the co-brand partner would “have a lot of leverage . . . [and




       41
            JX 32 at 1; Frantz Tr. 665.
       42
            JX 48 at 5.
       43
            Frantz Tr. 671-72.
       44
            Id. at 672; Logan Tr. 294-95, 299.
       45
            Frantz Tr. 646.

                                                 11
could] force their issuer to agree to buy metal cards for the program.”46 Kleinschmidt

believed that many co-brand partners did not know about metal cards.47 By educating co-

brand partners, consultants, and other industry figures, Kleinschmidt and Frantz thought

they could increase overall demand for metal cards. Because CompoSecure had a virtual

monopoly on metal cards, the orders would go to CompoSecure.48

      In a March 2015 email to Hollin, Kleinschmidt floated the idea of creating an

independent sales organization “that sources new business for [CompoSecure] primarily

(or solely) on a pay for performance basis.”49 The “independent sales organization” was a

fancy term for a separate entity that would provide services to CompoSecure as an

independent contractor, rather than an agent. That entity became CardUX.50

      Hollin liked the concept and raised it with Logan,51 who thought it was “a good

idea.”52 Working with Holly Flanagan, Kleinschmidt and Frantz developed a more detailed




      46
           Kleinschmidt Tr. 906-07; Hollin Tr. 123.
      47
           Kleinschmidt Tr. 906.
      48
           Id. at 910-11.
      49
           JX 32 at 2.
      50
         CardUX was formerly called Affluent Card, LLC. The parties’ testimony and the
contemporaneous documents refer at times to Affluent. The name change is not significant.
For consistency, this decision refers to the entity as CardUX.
      51
           Hollin Tr. 38.
      52
           Logan Tr. 170.

                                            12
proposal.53 Flanagan also had experience with marketing credit cards. She had worked in

business development, marketing, and co-brand partnering at MBNA America. She then

joined Juniper, where she worked with Kleinschmidt on co-brand programs.54

       Kleinschmidt, Frantz, and Flanagan initially proposed to “take over the entire sales

organization for CompoSecure,” and “do everything soup to nuts.”55 CardUX would be

compensated on a “commission-type model” tied to increased sales.56 They proposed a

20% commission on all sales growth over the existing customer revenue run rate.57

       On April 9, 2015, Kleinschmidt and Frantz pitched the idea to CompoSecure.58

Logan and her team resisted the 20% commission and the idea of turning over the entire

sales operation, but expressed interest in a more limited proposal.59 Logan deferred further

discussions until after the LLR investment closed.60




       53
            See JX 37.
       54
          Flanagan Tr. 438-40. She later joined Gabriel Investments as a managing director.
Id. at 442-43.
       55
            Frantz Tr. 674.
       56
            Id. at 700-01.
       57
            JX 37 at 11; JX 48 at 10; Frantz Tr. 675; Logan Tr. 323-24.
       58
            JX 42 at 1.
       59
            See JX 43 at 1; JX 49; JX 51.
       60
            JX 42; Hollin Tr. 30-31.

                                              13
D.     The LLR Investment Closes.

       On May 11, 2015, the LLR investment closed.61 Before the transaction,

CompoSecure had been a New Jersey limited liability company.62 As part of the

transaction, CompoSecure was converted into a Delaware limited liability company, and

the parties entered into a detailed limited liability company agreement to govern

CompoSecure’s internal affairs (the “LLC Agreement”).63 All of CompoSecure’s

outstanding Class A and Class B units were converted into a total of 44,000 Class A Units,

with 26,040 held by Logan, another 12,000 held in trusts for her children, and the remaining

4,400 held by a former employee.64 CompoSecure issued 66,000 new Class B Units to LLR

and its co-investors, with 63,402.27 Class B Units held in funds controlled by LLR.65

       Before closing, LLR’s attorneys emailed draft deal documents to Kleinschmidt,

including the LLC Agreement.66 “All of the Members of the Company tendered signature

pages for the LLC Agreement,”67 including Kleinschmidt.68



       61
            PTO ¶ 19.
       62
            Id. ¶¶ 4, 20.
       63
         The final LLC Agreement appears at JX 58. Citations to the LLC Agreement
appear in the form “LLCA § __.”
       64
            PTO ¶¶ 21-22.
       65
            Id. ¶¶ 24-25.
       66
            See JX 52-53; JX 55.
       67
            PTO ¶ 29.
       68
            JX 56 at 1.

                                            14
       “Upon the execution of the LLC Agreement, Kleinschmidt became a member of the

Board as one of LLR’s designees.”69 “LLR’s two other designees were Hollin and Justin

Reger.”70 “The Class A Majority’s designees were Logan and Herslow.”71

E.     CompoSecure and CardUX Outline Terms.

       Later in May 2015, CompoSecure and CardUX resumed their discussions about the

terms of a sales agreement.72 Logan initially took the lead for CompoSecure. On May 21,

she sent a proposal to Kleinschmidt that contemplated a three-tiered commission structure:

15% on orders of 5,000 cards or less, 12% on orders of 5,001 to 20,000 cards, and 10% on

orders of 20,001 cards or more.73 She envisioned CompoSecure identifying co-brand

prospects where CompoSecure had made inroads and excluding them from the structure.74

       Frantz responded for CardUX and rejected the proposal. He explained that, because

their work with co-brand partners would lead to large orders, the CompoSecure proposal

effectively offered a commission of 10%. CompoSecure’s proposal also excluded the

largest co-branding partners, which made it less attractive.75




       69
            PTO ¶ 30.
       70
            Id. ¶ 31.
       71
            Id. ¶ 32.
       72
            JX 65.
       73
            JX 69 at 3.
       74
            Id.; Logan Tr. 326.
       75
            JX 69 at 1; Frantz Tr. 678.

                                             15
      On June 5, 2015, Frantz sent Logan a counterproposal.76 It called for a commission

of 20% on “any [CompoSecure] product purchased by an approved prospect that is initiated

during the term of our contract or for 5 years after the termination.” 77 The proposal

contemplated a list of approved prospects so that CardUX could avoid interfering “with

[CompoSecure’s] existing issuer relationships or sales/account management process.”78

      A central question in this litigation has been whether the parties expected CardUX

to receive a commission if an approved prospect ordered metal cards, but the order came

through an issuing bank, such as Chase, that was not on the approved prospect list. CardUX

made it clear that it wanted a commission on these sales, and Logan and the CompoSecure

team understood this. For example, in an email to Logan on May 24, 2015, Frantz explained

that if CardUX could not receive compensation for sales that came through CompoSecure’s

existing customers, then they did not think the effort was worth pursuing.79 In an email to

Hollin on June 9, Logan proposed moving forward with the CardUX relationship,

specifying that CardUX would not “handle any issuing banks that we currently have

relationships with directly” and instead would work “through the specific co-branded

partners themselves.”80 Using the example of British Airways, a Chase-affiliated partner,



      76
           JX 77.
      77
           Id. at 2; see also Frantz Tr. 690; Logan Tr. 330-31.
      78
           JX 77 at 1.
      79
           JX 69 at 2.
      80
           JX 81 at 1; see also Logan Tr. 331-33.

                                              16
she explained that if CardUX wanted to promote metal cards with British Airways, they

had to deal with British Airways. They could not deal with Chase.81 At trial, Logan agreed

that she always understood that CardUX planned to focus on the co-brand partners and

wanted a commission on orders for approved prospects even if the issuer was an existing

CompoSecure customer and not on the approved prospect list.82

      Rather than being concerned about sales coming through existing customers, Logan

had different objections. She thought the overall economics were too generous to

CardUX.83 She worried that if CardUX and a personalization partner each had a hand in

selling to a co-brand partner, then CompoSecure could end up giving the 15% discount to

the personalization partner and paying the 20% commission to CardUX.84 She also disliked

CardUX’s proposal for perpetual commissions on subsequent orders from an approved

prospect, because she thought it would negatively affect what a buyer would pay for

CompoSecure in a future deal.85




      81
         Logan Tr. 332-33. In other emails, Logan recognized that CardUX would be going
around CompoSecure’s current customers (the issuing banks like Chase) to speak with the
co-brand partners. See JX 51 (Logan citing the “business awkwardness issues of their guys
end-running our current customers to go to affinity partners”); JX 70 (Logan noting that
“[g]oing to our current customers could be dangerous too”).
      82
           Logan Tr. 325, 327-28.
      83
         See JX 69 at 1 (Logan writing to colleague, “This is clearly [a] money grab. I am
not signing up for this. No way.”).
      84
           JX 81 at 1; Logan Tr. 334-35.
      85
           JX 81 at 1.

                                           17
       After further discussion, CardUX proposed a different commission structure: (i)

20% on deals in which the average price-per-card was under $100, (ii) 15% commission

on deals in which the average price-per-card was over $100, and (iii) no commission on

deals in which CardUX had “not been meaningfully involved in selling a cobrand partner

or issuer and the new sale results in compensation to a perso partner.”86 This was the first,

and only, time that CardUX made a proposal that turned on whether CardUX had some

degree of direct involvement in the sale (here, “meaningfully involved”). The efforts

clause87 in the proposal only related to sales involving compensation to a personalization

partner. CardUX included the concept because of Logan’s concern about double

payments.88 There is no indication that CardUX proposed linking its commissions more

broadly to any efforts-based standard. At trial, Logan confirmed that it was “the only

proposal that was ever made by CardUX that had an efforts clause.”89




       86
            JX 87 at 2 (emphasis added).
       87
          The parties have used the term “efforts clause” to refer to a provision that linked
CardUX’s entitlement to a commission with some degree of causal connection between
CardUX’s activities and the sale. The term is somewhat misleading because the ultimate
sales agreement contained an explicit section detailing specific efforts that CardUX had to
make. The real issue was not whether CardUX would make efforts, but rather whether
CardUX would have to show some degree of causal connection between its activities and
a sale to earn a commission. More accurate terms might be “causation clause” or
“involvement clause.” Because the parties have used “efforts clause,” this decision adopts
that usage.
       88
            JX 85 at 1.
       89
            Logan Tr. 339.

                                             18
      On June 17, 2015, CompoSecure simplified the structure by proposing a “15% flat

commission on all orders.”90 CompoSecure’s proposal did not condition payment on a

showing that CardUX was involved in the sale.91 CompoSecure also proposed “perpetual

commissions as long as your Team is meaningfully involved.”92 Perhaps sensing a

backdoor efforts clause, Frantz asked what “meaningfully involved” meant. Logan

explained:

      [W]e would expect that [CardUX] would not be “done” once they had made
      the sale. We expect them to be an additional touch point to co-brand or new
      clients and attend any quarterly meetings along with our project manager, and
      potentially be able to glean metrics information from new co-brand partners
      that would help us with future sales since we have been unable to get that
      information from issuing banks.93

The concept of being “meaningfully involved” did not apply to initial commission. It

applied to continuing commissions for subsequent orders from the same customer.94

      CardUX accepted CompoSecure’s terms. On June 24, Logan drafted a

memorandum that summarized the terms, circulated it to her senior management team and

the Board (excluding Kleinschmidt), then forwarded it to Hollin and CompoSecure’s




      90
           JX 90 at 2.
      91
           Logan Tr. 342-43.
      92
           JX 90 at 2.
      93
           JX 91 at 1.
      94
           Hollin Tr. 90.

                                          19
lawyers.95 The term sheet contemplated CardUX being “compensated for any

[CompoSecure] product purchase[d] by an approved prospect that is initiated during the

term of our contract or for their prospects that become clients for the following 2 years

after the termination of the contract.”96 The term sheet did not include any requirement that

CardUX show that its efforts led directly to a particular sale. The term sheet provided that

CardUX would receive “0% on all deals where they cannot prove meaningful involvement

in selling the co-brand partner and the new sale results in compensation to a personalization

partner.”97 This provision addressed the double compensation issue and was limited to sales

that would result in compensation to a personalization partner.

       None of the Board members objected to the term sheet. CompoSecure’s CFO

responded that the draft “looks good,” and Herslow told Logan to “let it fly.” Hollin had

one comment relating to expense reimbursements.98

       On July 1, 2015, the Board met for the first time. Logan made a brief presentation

about CardUX, and Kleinschmidt explained the overall strategy.99 The Board supported

the plan, and there was “a lot of enthusiasm for getting the deal done.”100



       95
            JX 95.
       96
            Id. at 4.
       97
            Id.
       98
            See JX 95; JX 96 at 1; Logan Tr. 347-49.
       99
            JX 100 at 3; Kleinschmidt Tr. 1056-57.
       100
             Kleinschmidt Tr. 1057; see also id. at 954-55.

                                              20
F.     CompoSecure and CardUX Negotiate A Formal Agreement.

       Shortly after the Board meeting, Logan’s mother was diagnosed with terminal

cancer. From that point on, although Logan remained involved, Hollin led the negotiations

for CompoSecure.

       On July 22, 2015, Hollin sent Kleinschmidt a draft of the agreement.101 Contrary to

the term sheet, CompoSecure’s counsel introduced several efforts clauses. Section 6.2(e)

provided for a commission on a sale “to an Approved Prospect or Customer . . . as a direct

result of [CardUX’s] services . . . .”102 Section 6.2(f)(iii) stated commissions would not be

paid “for any sale to an Approved Prospect for which [CardUX] cannot prove meaningful

involvement.”103 The draft defined “Customer” as “an Approved Prospect that has acquired

a Product through the sales efforts of Sales Representative.”104 It defined “Approved

Prospect” as “the companies listed on Schedule 2 attached hereto, as amended from time

to time as provided in this Agreement.”105

       On July 31, 2015, Kleinschmidt rejected the efforts clauses.106 Addressing Section

6.2(e), Kleinschmidt responded that CardUX intended “to be compensated for all Customer




       101
             JX 109.
       102
             Id. §§ 6.2(e), 6.2(f)(iii).
       103
             Id.
       104
             Id. § 1.
       105
             Id.
       106
             JX 113 at 2-3.

                                             21
Orders . . . into perpetuity, regardless of whether it’s an original, expired, or renewed

agreement with CompoSecure.”107 Addressing Section 6.2(f)(iii), he reiterated this point:

“[W]e can not [sic] agree to this provision – our intention is to be compensated for all

Customer Orders.”108

      Kleinschmidt also objected to the definition of “Customer,” explaining that it failed

to reflect “how the sales process will work and who we would often be calling on and

influencing.”109 He elaborated:

      In many cases we will be selling to an intermediary (i.e. Delta) who will then
      work with an issuer (i.e. Amex) to generate a new CompoSecure Customer
      order. Perhaps replacing the use of a defined term “[C]ustomer” with
      “Customer Order” will help avoid the confusion. We recommend Customer
      Order have the definition along these lines: “any purchase of Compo[S]ecure
      products that bears the marks of or are used in association with any Approved
      Prospect. To further clarify, the Customer Order might come from an
      Approved Prospect or an Issuer associated with an Approved Prospect.” In
      the example of Delta, Delta would not place the order with CompoSecure,
      and may never talk with the CompoSecure directly. The order would come
      from Amex because of the request or requirement made on Amex by Delta.110

This explanation directly addressed the situation in which an issuing bank placed an order

with CompoSecure for an Approved Prospect. At trial, Kleinschmidt explained that “if

those programs ever had cards purchased associated with them, had marks and all that stuff,

[then] they would be counted as a sale. And it wouldn’t matter whether it was purchased



      107
            Id. at 3.
      108
            Id.
      109
            Id. at 2.
      110
            Id. at 2-3.

                                            22
by an approved issuer or excluded customer . . . like Amex.”111 At trial, Logan confirmed

that she understood Kleinschmidt’s point, namely that if CompoSecure sold cards to an

issuing bank, “and the issuer is not an approved prospect but the card is for an approved

prospect,” then CardUX “get[s] a commission.”112

       The CardUX principals explained at trial why they consistently rejected any type of

efforts clause. First, given the nature of what CardUX would be doing, in many

circumstances it would be impossible to prove a connection.113 Second, any subjective

standard, such as “meaningfully involved” or “directly related,” would lead to disputes.114

Third, automatically receiving commissions on sales to Approved Prospects

counterbalanced the fact that “most of the credit card world” was “not on the list.”115 By

broadly working to popularize metal cards, CardUX “would be over time generating

business that would not be related to those [A]pproved [P]rospects.”116 CompoSecure



       111
             Kleinschmidt Tr. 921.
       112
             Logan Tr. 364; see also id. 369.
       113
          Flanagan 546 (“[I]t would be difficult to ascertain specifically what work we did
connected to what orders.”); Frantz Tr. 707 (“[I]n many cases we would be working
through these cobrand partners and they would be demanding their issuers, so we weren’t
sure there would be necessarily a . . . direct connection between the order and our efforts.
We also knew we were going to be promoting these to other folks in the industry, brokers
that might put this in an RFP that we don’t know about, or eventually doing some other
general marketing activities.”).
       114
             Frantz Tr. 722-23; Kleinschmidt Tr. 927-32, 936-37; see also Logan Tr. 198-99.
       115
             Kleinschmidt Tr. 987-88; see also Frantz Tr. 786-87.
       116
             Kleinschmidt Tr. 936.

                                                23
would get the benefit of those sales without paying commissions, regardless of any

connection to CardUX’s efforts. Reciprocally, CardUX wanted a commission for sales to

Approved Prospects, regardless of any connection to CardUX’s efforts.117

       Hollin did not object to Kleinschmidt’s deletion of the efforts requirements. 118 He

only pushed back on paying commissions “forever and unconditionally” on further orders

from the Approved Prospect.119 Ultimately, CompoSecure and CardUX compromised:

CardUX would receive commissions for a period of fifteen years.120

       At this point, Hollin sought input from the CompoSecure management team. Logan

reported that the team wanted to make sure that (i) CardUX continued to service an

Approved Prospect after the initial sale and (ii) CardUX would receive a reduced

commission if a customer’s purchase came through a personalization partner. The

management team also expressed concern about the impact of CardUX’s commission on

CompoSecure’s margins.121 The team did not cite the lack of any requirement for CardUX

to show a connection between its activities and a particular order.




       117
             Frantz Tr. 805, 845; see also Kleinschmidt Tr. 936.
       118
             JX 113 at 2.
       119
             Id.
       120
             JX 165 § 6.2(e).
       121
             JX 123 at 3.

                                              24
       On August 17, 2015, Hollin sent a revised draft that retained the efforts clauses in

Sections 6.1, 6.2(e), and 6.2(f)(iii).122 It revised the definition of “Customer” to clarify that

“[i]f an Approved Prospect’s order of a Product is indirect, such as through another

customer, including an Excluded Customer, the Approved Product’s marks or association

with the Product must be reasonably clear to CompoSecure in order for the Approved

Prospect to be considered a Customer.”123 The draft retained the requirement that the order

result from the “sales efforts” of the CardUX team.124

       On September 14, 2015, Kleinschmidt returned a markup.125 Among other changes,

he deleted the efforts clauses and the definition of “Customer.”126 He added a sentence to

Section 6.1 to clarify that sales to Approved Prospects earned commissions, even if the

actual purchaser was an Excluded Customer.127 He also made changes to the definition of

“Net Sales Price.”128




       122
             JX 127 §§ 6.1, 6.2(e), 6.2(f)(iii).
       123
             Id. § 1.
       124
             Id.
       125
             JX 133.
       126
             Id. §§ 1, 6.1, 6.2(e), 6.2(f)(iii).
       127
             Id. § 6.1.
       128
             Id. § 1.

                                                   25
       At the end of his email, Kleinschmidt proposed adding companies to the Approved

Prospect list where CardUX had “extremely strong relationships but where CompoSecure

has already made inroads.”129 With respect to these customers, he stated:

       We are definitely not looking to get credit for work that has been done and
       orders that would take place absent our efforts. But in a few cases, our
       relationships are so strong and longstanding, it would be a shame not to make
       them part of this effort. In particular, American, United, and
       BarclaycardUS/UK (excluding Visa Black) come to mind as situations where
       we are uniquely positioned to make a significant impact even though
       [CompoSecure] products are being offered (United, possibly American) or
       proposed (BarclaycardUS, excluding Visa Black). This is a secondary / non
       contract issue, but we wanted to raise it mainly because it seems like such a
       significant opportunity for both parties.130

Kleinschmidt reiterated this request in a later email and added that he thought

CompoSecure was “making a mistake . . . [by] narrowing the sales effort we would drive,

especially by excluding several of the issuers and partners where we have strong

relationships.”131

       At trial, Hollin and Logan testified that they interpreted “[w]e are definitely not

looking to get credit for work that has been done and orders that would take place absent

our efforts” as Kleinschmidt broadly stating that CardUX only planned to take




       129
             Id. at 2 (transmittal email attaching draft agreement).
       130
             Id.
       131
           JX 137 at 2 (“the only mistake I believe [CompoSecure] is making with the
[CardUX] Agmt is narrowing the sales effort we would drive, especially by excluding
several of the issuers and partners where we have very strong relationships.”).

                                                26
commissions on sales generated by its marketing efforts.132 Logan claimed that she did not

believe the paragraph was limited to the identified partners and that, in light of this

sentence, CardUX would receive a commission only if it could show that an order would

not have taken place absent its efforts.133

       This testimony was not credible. The structure of the email makes clear that

Kleinschmidt was identifying only “a few of the partners and issuers . . . where

CompoSecure has already made inroads.”134 As Logan conceded, Kleinschmidt identified

the ask as “separate and apart from what’s in the contract.”135 It is not reasonable to read

the email as overriding the parties’ negotiations and what later became the express terms

of the agreement.

       On October 2, 2015, Hollin sent Kleinschmidt an “updated draft.”136 It dropped the

defined term “Customer” and deleted the efforts language from Sections 6.1, 6.2(e), and

6.2(f).137 This change ran contrary to Hollin and Logan’s claim at trial that Kleinschmidt

had agreed to an overarching efforts requirement. Had he done so, these clauses would




       132
             Hollin Tr. 44; Logan Tr. 196-97.
       133
             Logan Tr. 384-86.
       134
             JX 133 at 2.
       135
             Logan Tr. 384-86.
       136
             JX 140.
       137
             See id. §§ 1, 6.1, 6.2(e), 6.2(f).

                                                  27
have implemented the requirement, and Kleinschmidt would have had no reason to delete

them.

        The updated draft added language to Section 6.1 that stated, “[f]or any indirect

purchases pursuant to this Section 6.1, the Approved Prospect’s connection to the

purchased Products must be reasonably clear to CompoSecure for Commissions to be

payable on such purchases.”138 On October 14, 2015, Kleinschmidt objected to this

language.139 Hollin, Logan, and the management team agreed to drop it.140

        On October 22, 2015, CompoSecure’s counsel circulated a final draft.141 It did not

contain any efforts clauses, did not include a definition of Customer, and included

Kleinschmidt’s October 14 comments.142

        On October 28, 2015, Logan informed Kleinschmidt that CompoSecure was taking

Alaska Airlines off of the Approved Prospect list because it had requested a metal-card

prototype.143 Kleinschmidt told his team that “getting the deal done with [C]ompo . . . is

the highest priority.”144 CompoSecure had exclusive control over what businesses stayed




        138
              Id. § 6.1.
        139
              JX 148 at 2.
        140
              Id. at 1; see also JX 150.
        141
              JX 151.
        142
              Id. §§ 1, 6.1, 6.2, 11.2.
        143
              JX 160 at 1.
        144
              Id.

                                            28
on the list,145 and Kleinschmidt believed the agreement covered “a very limited list of

Approved Prospects.”146 Kleinschmidt wanted to avoid losing other prospects by signing

the agreement as soon as possible.

G.    The Executed Sales Agreement

      On November 4, 2015, an execution version of the proposed sales agreement was

circulated among the parties.147 On November 5, Logan forwarded the agreement to her

senior management team.148

      On November 9, 2015, the sales agreement was executed.149 The final version of the

document is dated as of November 6, 2015.150 This decision refers to it as the “Sales

Agreement.”

      Sections 3.1 and 3.2 of the Sales Agreement specified the efforts that CardUX was

required to undertake.151 Section 3.1 stated that CardUX “shall use commercially

reasonable efforts to market, advertise, promote and solicit the sale of the Products to

Approved Prospects, consistent with good business practice, in an attempt to maximize




      145
            JX 148 at 2.
      146
            JX 328.
      147
            PTO ¶ 43.
      148
            Id. ¶ 46.
      149
            Id. ¶ 47.
      150
            JX 165. Citations to the Sales Agreement appear in the form “SA § __.”
      151
            Logan Tr. 352-53.

                                            29
Product sales volume to Approved Prospects.”152 It contained eight subsections identifying

discrete marketing obligations. Section 3.2 specified the efforts that CardUX had to make

after a sale to an Approved Prospect. It provided that CardUX “shall use commercially

reasonable efforts to maintain good business relationships with such Approved Prospects,

and to keep CompoSecure apprised of material developments in such business relationships

that Sales Representative becomes aware of.”153 It contained four subsections identifying

discrete servicing obligations.

       Section 6.1 of the Sales Agreement provided that “CompoSecure shall pay

[CardUX] a commission on all sales of Products to Approved Prospects pursuant to the

terms of this Agreement of fifteen percent (15%) of the Net Sales Price.” 154 The Sales

Agreement did not contain any provisions conditioning CardUX’s receipt of a commission

on a link between its efforts and the sale.

       Schedule 2 of the Sales Agreement identified 119 Approved Prospects divided into

eight categories:

                Twenty-three under the heading “Card Issuers.”

                Twenty-two under the heading “Wealth Management/Private Banks.”

                Twenty under the heading “Airlines.”

                Eighteen under the heading “Hotel/Cruise Line.”



       152
             JX 165 § 3.1.
       153
             Id. § 3.2.
       154
             Id. § 6.1.

                                              30
                Fourteen under the heading “Retail.”

                Eight under the heading “Auto Companies.”

                Seven under the heading “Travel.”

                Seven under the heading “Financial Companies/Other.”155

With the aid of a demonstrative, Frantz testified at trial that forty-eight of the Approved

Prospects already had a card program with an issuing bank that was not an Approved

Prospect. For seven of those programs, the issuing bank was Chase.156

       Logan executed the Sales Agreement on behalf of CompoSecure in her capacity as

CEO.157 At the time, no one focused on pertinent approval requirements in the LLC

Agreement.158 Most significantly, Section 5.4 provided as follows:

       Notwithstanding that it may constitute a conflict of interest, each of the
       Members, the members of the Board and their respective Affiliates, or any
       other Related Party, may engage in any transaction or other arrangement
       (including . . . the rendering of any service . . . ), whether formal or informal,
       with the Company . . . , and the Company may engage in any such
       transaction, only if such transaction is at arm’s length and approved by the
       Board, the Investors and the Class A Majority.159

This decision refers to Section 5.4 as the “Related Party Provision.”




       155
             Id. sched. 2.
       156
             Frantz Tr. 726-27; see also JX 533.
       157
             PTO ¶ 49.
       158
             Hollin Tr. 103.
       159
             LLCA § 5.4.

                                              31
       The Related Party Provision applied to the Sales Agreement because CardUX

qualified as an “Affiliate” of Kleinschmidt, who was a member of the Board.160 CardUX

also qualified as a “Related Party.”161 Consequently, the Sales Agreement required the

approval of the Board, the Investors, and the Class A Majority.162




       160
          The LLC Agreement defines an “Affiliate” of any person “that is not a natural
person” to mean “any other Person controlling, controlled by, or under common control
with such particular Person, where ‘control’ means the possession, directly or indirectly,
of the power to direct the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.” LLCA § 1. CardUX has not
disputed that it is Kleinschmidt’s affiliate. It seems obvious to me that CardUX is, at a
minimum, under the common control of Kleinschmidt, Frantz, and Flanagan.
       161
            The LLC Agreement defines “Related Party” as “any manager, Member or
officer of the Company or any Subsidiary of the Company, any Affiliate of the foregoing,
and any other Person in which any of the foregoing has a direct or indirect interest (financial
or otherwise).” LLCA § 1. As noted, CardUX is an Affiliate of Kleinschmidt, and
Kleinschmidt was a “Member” of the Company, defined as “each Holder identified on
Schedule A.” Id. Kleinschmidt appeared on Schedule A as the holder of 1,081.97 Class B
units. Id. sched. A.
       162
            CompoSecure argues that the Sales Agreement also qualified as a “Restricted
Activity” under Section 4.1(p) of the LLC Agreement. LLCA § 4.1(p). In summary,
Section 4.1(p) requires that CompoSecure prepare an annual budget and annual business
plan. It then provides that, except as set forth in the annual budget or business plan, the
Company cannot undertake any Restricted Activity “without the prior approval of the
Board and Investors (and during the Earnout Period, the Class A Majority).” Id. The list of
eighteen “Restricted Activities” in Section 4.1(p)(ix)(A) includes, “enter[ing] into . . . any
contract . . . requiring the Company . . . to make expenditures in excess of $500,000 during
any fiscal year, other than in the ordinary course of business consistent with past practice.”
Id. § 4.1(p)(ix)(A). The defendants’ invocation of Section 4.1(p) is cumulative. Assuming
without deciding that the Sales Agreement qualified as a Restricted Activity, the analysis
of the approval requirements under the Related Party Provision applies equally to the
comparable requirements under Section 4.1(p).

                                              32
      The Sales Agreement did not receive formal approval from the Board. The Board

materials presented during its meeting in July 2015 had discussed the anticipated terms of

the agreement, and the Board materials presented during its meeting in December 2015

contained a slide summarizing the final Sales Agreement. The Sales Agreement itself was

not provided to the Board.163 The Board did not take formal action to approve the Sales

Agreement at either meeting. Nor did the directors take action without a meeting by

executing a written consent.

      The Sales Agreement did not receive formal approval from the Investors. The LLC

Agreement defined the “Investors” as the funds managed by LLR that held units in

CompoSecure. Hollin represented the LLR funds and supported the Sales Agreement, but

the record does not contain a written document, executed by a representative of LLR,

reciting that LLR had approved the Sales Agreement for purpose of the LLC Agreement.

      The Sales Agreement did not receive approval from a Class A Majority. The LLC

Agreement defined “Class A Majority” as members holding at least 51% of the Class A

Units. Logan held a majority of the Class A Units. She supported the Sales Agreement and

signed it in her capacity as CEO, but the record does not contain a written document,

executed by Logan, reciting that a Class A Majority had approved the Sales Agreement for

purpose of the LLC Agreement.




      163
            Hollin Tr. 47; Tartavull Tr. 1148.

                                                 33
       Despite CompoSecure’s failure to comply with the Related Party Provision, Logan

signed the Sales Agreement.164 The signature block recites that she signed on behalf of

“COMPOSECURE, L.L.C.”165 It identifies her by name and lists her title as “Chief

Executive Officer.”166 Moreover, in Section 11, each party to the Sales Agreement made

the following representations and warranties to the other:

       (a) It is duly organized, validly existing and in good standing in the
       jurisdiction of its formation;

       (b) it has the full right, power and authority to enter into this Agreement, to
       grant the rights and licenses granted under this Agreement and to perform its
       obligations under this Agreement;

       (c) the execution of this Agreement has been duly authorized by all necessary
       company action; and

       (d) this Agreement constitutes the legal, valid and binding obligation of such
       Party, enforceable against such Party in accordance with its terms, subject to
       the effect of any applicable bankruptcy, insolvency, reorganization,
       moratorium, or similar laws affecting creditors’ rights generally or the effect
       of general principles of equity (regardless of whether considered in a
       proceeding at law or in equity).167

This decision refers to these representations collectively as the “Authority

Representations.”




       164
             Logan Tr. 374.
       165
             JX 165 at 26 (signature page).
       166
             Id.
       167
             Id. § 11.1.

                                              34
      When Logan signed the Sales Agreement, she believed the Authority

Representations were accurate and that she had the authority to bind CompoSecure.168

Hollin, who represented LLR in its capacity as CompoSecure’s majority owner, also

believed that Logan was authorized to sign the Sales Agreement.169 Herslow, who founded

CompoSecure, had the same view.170

H.    The Parties Treat The Sales Agreement As Valid.

      After the parties signed the Sales Agreement, both sides treated it as valid. CardUX

began its marketing efforts, which CompoSecure supported by providing sample cards.171

CompoSecure included expenditures under the Sales Agreement in its annual budget.172

The parties also discussed changes to the list of Approved Prospects.

      One potential change related to Discover, which was an Approved Prospect. On

November 13, 2015, Logan learned that Discover had budgeted funds to purchase metal

cards.173 Logan informed Hollin and noted that it was a case where CompoSecure would

pay 30% in total commissions, because the deal came through a personalization partner




      168
            Logan Tr. 199, 266-67, 270; Logan Dep. 6, 8-10, 51.
      169
            Hollin Dep. 163-64.
      170
            Herslow Dep. 75-76.
      171
            See, e.g., JX 178 at 1; JX 182 at 1; JX 200 at 1; JX 217.
      172
            See Logan Tr. 208-09, 288, 290-91.
      173
            JX 173 at 3.

                                              35
and Discover was an Approved Prospect.174 Hollin and Logan debated whether CardUX

would agree to swap Discover for Barclays. Logan proposed the swap to Kleinschmidt and

Frantz, but they declined.175

       The parties also negotiated over adding American Airlines to the Approved

Prospect list. CompoSecure had already made inroads with American, but was unsure if

American would place an order. CardUX had strong contacts there, and Logan thought

CardUX could “clinch the deal,” but she did not want to pay a full commission because

CompoSecure had made CardUX’s job “a little easier.”176 In December 2015, Logan

offered to add American Airlines to the Approved Prospect list if Kleinschmidt would take

a 7.5% commission.177 Kleinschmidt agreed to the one-off amendment.178 Both parties

signed a modification adding American Airlines to the Approved Prospect list at a 7.5%

commission.179

I.     The Amazon Sale

       Over the next six months, before CompoSecure took the position that the Sales

Agreement was invalid, CardUX engaged in sales efforts with at least forty-eight




       174
             Id. at 1.
       175
             JX 185 at 2.
       176
             JX 198.
       177
             JX 200 at 2.
       178
             Id. at 1.
       179
             JX 206.

                                           36
prospects.180 Voluminous evidence in the record demonstrates the extensive marketing and

sales efforts that CardUX pursued during this period.181 CardUX’s efforts with Amazon

illustrate some of the marketing and sales activities that CardUX pursued and provide the

factual context for the current dispute.

       In November 2015, shortly after the Sales Agreement was signed, Flanagan reached

out to a “good friend” at Amazon who was responsible for vendor management.182

Flanagan told her about metal cards, CompoSecure, and the benefits to Amazon from using

metal cards for its credit-card and gift-card programs. She asked her friend to “help us

make the introductions with the right people.”183 In mid-December, Flanagan’s friend set




       180
             JX 426 at 1.
       181
           The record from this period includes the contact reports and related documents
that CardUX regularly provided to CompoSecure. See, e.g., JX 364; JX 375; JX 391; JX
403-04; JX 408; JX 410; JX 418; JX 430. It also includes numerous emails relating to
CardUX’s efforts. See, e.g., JX 367; JX 370; JX 395; JX 398; JX 401; JX 405; JX 413-14;
JX 531-32. In some emails, Flanagan identified herself as representing either Vague or
Kleinschmidt or the firm they used to manage their capital, Gabriel Investments. See, e.g.,
JX 374; JX 376-77; JX 390; JX 396; JX 406; JX 409; JX 420. She believed those
connections would carry more weight and get better results than CardUX. Flanagan Tr.
455-47, 531-33, 570. The CompoSecure Board received a report on CardUX’s activities
during its February 2015 meeting. See JX 372 at 19. At trial, Flanagan testified credibly
and at length about the efforts that CardUX made to fulfill its obligations under the Sales
Agreement.
       182
             See JX 203; JX 218; Flanagan Tr. 453-54.
       183
             Flanagan Tr. 454.

                                             37
up a meeting for CardUX with the general manager of the gift-card division, who reported

to the same person as the head of the credit-card division.184

       Meanwhile, during the first week of December 2015, Kleinschmidt and Flanagan

met with the principals of First Annapolis. Although the meeting was not specifically

related to Amazon, First Annapolis was one of the leading industry consultants to co-brand

partners, and its principals exemplified the types of industry influencers that CardUX could

reach.185 First Annapolis had advised Amazon in the past, and an image of an Amazon

credit card appeared on its website.186 During the meeting, Kleinschmidt and Flanagan

promoted the benefits of metal cards and explained that a co-brand partner could push for

metal cards when negotiating with an issuer.187 The First Annapolis principals expressed

interest in having their clients include requirements for metal cards in their requests for

proposals (“RFPs”) to issuers.188 Kleinschmidt reported on the meeting to Logan and asked

for samples to share with First Annapolis.189

       Unbeknownst to CardUX, Amazon had already issued an RFP. During the first

week of December 2015, CompoSecure received an inquiry from Bank of America about



       184
             See JX 233 at 1; Flanagan Tr. 458.
       185
             See JX 205 at 1; JX 278 at 1; Kleinschmidt Tr. 978.
       186
             Kleinschmidt Tr. 980.
       187
             Id. at 979.
       188
             JX 205 at 1; JX 531 at 1; Flanagan Tr. 575.
       189
             JX 205 at 1.

                                              38
a potential order of “several million” metal cards.190 Days later, Logan received a similar

inquiry from Chase.191 Logan inferred that a co-brand partner was soliciting proposals.192

She learned that Amazon was the co-brand partner from her contact at Chase.193

      Amazon was an Approved Prospect under the Sales Agreement. The issuing banks

who were competing for the business—Bank of America and Chase—were not Approved

Prospects. Immediately upon hearing about the Amazon order, Logan wrote the following

to Hollin: “Yikes. Kevin and Paul would get 15%.”194 At trial, Logan and Hollin confirmed

that the Amazon order met the requirements for a commission under the Sales

Agreement.195 On December 14, 2015, Logan sent an email to Hollin bemoaning the fact

that CompoSecure “didn’t insist on a lower commission” for Chase orders “since the whole




      190
            Logan Tr. 210.
      191
            JX 213 at 2.
      192
            Logan Tr. 210.
      193
            See JX 213; JX 214; Logan Tr. 255-56.
      194
            JX 213 at 1.
      195
          Hollin Tr. 85-86; Logan Tr. 379-80. Logan testified at trial that she knew at the
time that CardUX would not earn a fee for the Amazon order if it came through Chase.
Logan Tr. 174, 220-21. She attempted to re-interpret her contemporaneous emails. See
Logan Tr. 213-15, 264. Her testimony was strained, seemed overly rehearsed, and was not
credible.

                                            39
point is to lower the concentration.”196 Hollin told Logan that CompoSecure should “live

with the deal as agreed.”197

       After learning that Amazon was the source of the order, CompoSecure enlisted

CardUX’s help in steering the business to Bank of America.198 Because Chase received

volume discounts, the order would generate more revenue for CompoSecure if it came from

Bank of America.199 Kleinschmidt told Logan that CardUX would work to ensure that

Amazon “requires metal cards from whatever issuer receives the new contract.”200

       CardUX advised CompoSecure that it was “mov[ing] Amazon to the top spot” on

its prospect list and requested sample cards for use in upcoming meetings with Amazon

personnel.201 Using her contacts, Flanagan reached the General Manager of North America

Credit Cards at Amazon, an executive of Amazon’s Global Credit division, and the General

Manager of Amazon Co-Branded Credit Card Programs in the US and Canada.202

       Frantz and Flanagan met with Amazon representatives on January 26, 2016, less

than a week after Chase and Amazon signed a renewed co-branding agreement that called




       196
             JX 219; see also Logan Tr. 387-89.
       197
             JX 226 at 1.
       198
             JX 219; see also JX 227 at 1.
       199
             Logan Tr. 257.
       200
             JX 227 at 1.
       201
             JX 237 at 1.
       202
             See JX 251; JX 268 at 2-3; Flanagan Tr. 458-60.

                                             40
for metal cards.203 The evidence at trial established that CardUX’s efforts did not contribute

to Amazon’s request for metal cards. Amazon first demanded metal cards in October 2015,

before CardUX started pursuing Amazon.204 Although Chase resisted the metal card

requirement,205 Amazon insisted,206 and it became clear by mid-December that Chase

would “be issuing a metal card.”207

       Chase and Amazon finalized the terms of their agreement, including the metal-card

requirement, on January 19, 2016.208 On January 22, Logan learned that Chase would be

placing a massive order for Amazon. She called Hollin with the news.209 She later emailed

him: “Oh boy Mitchell . . . . I know that we are trying to decrease the customer

concentration but it’s hard to say no to 70% margin business.” 210 This decision refers to

Chase’s order for the Amazon co-brand program as the “Amazon Sale.”




       203
             JX 309 at 1.
       204
             JX 152 § 2.3(a).
       205
             See JX 190 § 2.3(a) (deleting metal card requirement).
       206
             Garcia Tr. 486.
       207
             Id. at 488.
       208
             JX 263.
       209
             Logan Tr. 220.
       210
             JX 216; Logan Tr. 319.

                                              41
J.     The Dispute Over The Amazon Sale

       Logan called Kleinschmidt to convey the news about the Amazon Sale. She told

him, “You hit the lottery.”211 She described the expected size of the order and estimated

that “up-front the commission would be $9 million.”212 She asked Kleinschmidt “to

consider taking a lower commission” and suggested that he follow up with Hollin.213

       When Hollin and Kleinschmidt spoke, Hollin asked Kleinschmidt to consider taking

a lower commission.214 He also asked Kleinschmidt to describe what CardUX had done to

generate the Amazon order.215 On January 28, 2016, Kleinschmidt sent an email to Logan

and Hollin that detailed CardUX’s contacts with First Annapolis and Amazon and

requested a commission for the Amazon Sale.216




       211
             Kleinschmidt Tr. 966.
       212
             Id. at 967.
       213
          Id. at 967-98. Logan testified that she called Kleinschmidt and said that CardUX
“would not be getting a commission from Chase because they [Chase] are an excluded
customer. And . . . because they [CardUX] weren’t involved in this.” Logan Tr. 392. I reject
her account and credit Kleinschmidt’s. In contemporaneous emails, Logan recognized that
CardUX was entitled to a commission. JX 213; JX 219. She admitted at trial that the
Amazon sale met the requirements of the Sales Agreement. Logan Tr. 379-80. This was
not the only instance when Logan’s testimony did not hang together. Kleinschmidt’s
account, by contrast, was credible.
       214
             Kleinschmidt Tr. 969.
       215
             Hollin Tr. 53-54.

         JX 278. Part of Kleinschmidt’s belief stemmed from his contact with First
       216

Annapolis. On January 27, 2016, one of the principals of First Annapolis sent an email to
Kleinschmidt saying he gave CardUX “a big plug to a super large retailer that is on fire in
                                            42
      Logan forwarded the email to Herslow and the rest of CompoSecure’s management

team.217 Herslow did not want to pay the commission. He posited that CompoSecure would

have “a very good case with minority shareholder rights since LLR with 60% forced us to

sign an agreement which we never would have signed anyway [a]nd compromised us

financially.”218 At another point, he suggested that CompoSecure pay CardUX “5 percent

and let them sue.”219 At trial, he admitted that his coercion claim was baseless.220 In his

deposition, Herslow admitted that he was “coming up with reasons to either invalidate the

Agreement or in order to not pay CardUX’s commission.”221

      On February 5, 2016, the CardUX principals met with Logan and other

CompoSecure representatives.222 Logan told Kleinschmidt that CompoSecure was not

going to pay the commission.223 She questioned whether CardUX had any role in




terms of growth.” JX 532. At trial, the Chase representative testified that Amazon used a
consultant on its RFP, but did not reveal the consultant’s identity. Garcia Tr. 473.
      217
            JX 282.
      218
          JX 290; see also JX 291 (email from Herslow asking Logan if she “would have
signed the ISO contract if Mitchell hadn’t ordered [her] to do it”).
      219
            JX 292; see also JX 294 at 1.
      220
            Herslow Tr. 1183.
      221
            Herslow Dep. at 187-89.
      222
            JX 309.
      223
            Id. at 3.

                                            43
generating the Amazon Sale.224 She also claimed that the Sales Agreement “was forced on

her by LLR.”225 At trial Logan admitted that her claim about LLR forcing her to accept the

Sales Agreement was “a false statement.”226 Hollin also labeled it “false.”227

          Kleinschmidt refused to compromise. He took the position that “we have a contract

and [CompoSecure] would owe [CardUX] the money even if [CardUX] did nothing to earn

it.”228

          Several days after the meeting, Hollin spoke again with Kleinschmidt and asked him

to take a reduced commission. Hollin warned Kleinschmidt that if CardUX took “a very

hard-line” and “was unreasonable,” then “it would not be a happy outcome.”229

Kleinschmidt maintained that CardUX was entitled to a commission under the Sales

Agreement.230

          At this point, CompoSecure started obstructing CardUX’s ability to earn more

commissions. In an email dated February 12, 2016, Kleinschmidt advised Logan that

CardUX had learned from “multiple sources in the industry that Disney is in the process of




          224
                Id.
          225
                Id.
          226
                Logan Tr. 243-45.
          227
                Hollin Tr. 125.
          228
                JX 309 at 3.
          229
                Hollin Tr. 57.
          230
                JX 329.

                                              44
conducting an RFP.”231 Kleinschmidt told Logan that he wanted to meet with Disney’s

consultant on the RFP and asked for Logan’s approval to share samples with the consultant.

Logan withheld approval, telling Kleinschmidt that “[s]ince Disney is a [Chase] client we

need to resolve the way forward for any [Chase] business for co-brands on the approved

prospect list.”232

       Kleinschmidt asked if this meant that CardUX should not provide samples to Disney

directly. Logan turned to her senior management team for advice. Stephen Luft, the

Technical Sales Vice President, told her that giving CardUX permission to approach

Disney would be “digging a deeper hole until they agree to the lower percentage.”233 Justin

D’Angelo, the Chief Operating Officer, said he “wouldn’t give [CardUX] samples till [sic]

this issue is resolved.”234 Timothy Fitzsimmons, the Chief Financial Officer, was more

measured. He recognized that because CardUX “sells to affinity partners it is inevitable

that they will on occasion issue through [Chase].”235 He pointed out that CompoSecure was

assuming it would get the Chase business anyway, but he thought that “[t]he theory that

affinity partners can force the banks to use us makes sense” and that “[t]his is where the




       231
             JX 346 at 3.
       232
             Id. at 2.
       233
             Id. at 1.
       234
             JX 347 at 1.
       235
             JX 350 at 1.

                                            45
[CardUX] team truly can bring value.”236 He questioned whether CompoSecure should

seek a carve-out for Chase business, but agreed that CompoSecure should “hold off” on

supporting the Disney RFP.237 D’Angelo responded that CompoSecure should seek a

broader renegotiation of the Sales Agreement in which there would be “a differentiation

made between existing co-branded [C]hase clients and future ones” and where any

commission would “only be paid if they can demonstrate direct involvement.” 238 Herslow

wanted to “[c]ancel the [Sales Agreement] and negotiate[e] a new one.”239

      Logan instructed Kleinschmidt not to pursue Disney or any other Chase partner.240

In March 2015, when CardUX asked to move forward with sending samples to a

consultant, Logan said she would not provide samples until “we have an agreed path

forward.”241 In April 2015, Logan instructed her staff “to put any further prototypes” for




      236
            Id.
      237
            Id.
      238
            JX 352 at 1.
      239
            JX 353 at 1.
      240
          Logan Tr. 396 (Logan describing her instruction to CardUX not to talk to Disney
or any approved prospect that issued its cards through Chase); see also JX 350 at 2; JX 438
at 1 (CompoSecure instructing CardUX not to discuss metal cards with Qantas, despite
Qantas being an Approved Prospect).
      241
            JX 385 at 1.

                                            46
CardUX “on hold until we see some orders.”242 As a result, CardUX attended meetings

with Approved Prospects without samples and support from CompoSecure.243

K.     The Dispute Deepens.

       At the end of February 2015, CompoSecure proposed having Phillipe Tartavull

attempt to resolve the dispute over the Amazon Sale.244 Tartavull had joined the Board at

the December 2015 meeting.245 He spoke with Kleinschmidt and Frantz at the end of March

and proposed resolving the dispute through a payment by CompoSecure of $1-1.5 million

and a renegotiation of the Sales Agreement that would involve lower commissions. 246 His

offer gained little traction.

       To force the issue, CompoSecure hired a litigation firm and prepared for a lawsuit.

In an email dated May 10, 2016, Logan instructed CardUX to stop work, stating: “As you

are aware, we are continuing to evaluate the relationship between CompoSecure and

you/Card UX, LLC. We are now going to pause all activities and communications with

CardUX . . . .”247 Kleinschmidt objected, noting that CompoSecure had an obligation under




       242
             JX 415 at 1.
       243
             See JX 426 at 1-2.
       244
             See JX 369.
       245
             JX 372 at 46; JX 518; Hollin Tr. 47.
       246
             See JX 393; see also JX 426 at 1 (Kleinschmidt describing proposal); JX 429 at
1 (same).
       247
             JX 426 at 2.

                                              47
Section 4.1 of the Sales Agreement to use “commercially reasonable efforts to support the

sales and servicing efforts of [CardUX] contemplated by this Agreement.”248 On May 13,

2016, LLR removed Kleinschmidt from the Board.249

      By letter dated May 26, 2016, CompoSecure’s litigation counsel asserted for the

first time that the Sales Agreement had never received the approvals required by the LLC

Agreement.250 CompoSecure made that determination “shortly before [the] letter was

sent.”251 Hollin and Logan had never questioned the validity of the Sales Agreement before

the dispute over the Amazon Sale arose.252

      The letter from CompoSecure’s litigation counsel also accused CardUX of having

breached the Sales Agreement by engaging “in numerous prohibited contacts with

MasterCard, Visa and Barclays.”253 Its counsel further accused CardUX of having

“ignor[ed] [CompoSecure’s] reasonable directions and instructions to work in a

coordinated manner.”254 By the time of trial, CompoSecure had abandoned those positions.




      248
            Id. at 1.
      249
            PTO ¶ 50; JX 427.
      250
            JX 437; see also Franz Tr. 744-45; Logan Tr. 398.
      251
            Logan Tr. 399.
      252
            Hollin Tr. 102-03; Logan Tr. 199.
      253
            JX 437 at 4.
      254
            Id.

                                             48
       Despite making these assertions, the letter from CompoSecure’s litigation counsel

stated that CompoSecure expected CardUX to continue working while CompoSecure

sought “a judicial determination as to the validity of the Agreement.”255 The CardUX team

had, in fact, continued to reach out to prospects and pursue leads, and they continued to do

so during the ensuing litigation.256 Their efforts developed additional business for

CompoSecure. In November 2016, CompoSecure recognized CardUX’s efforts to market

to Discover and its right to a commission from the resulting Discover order.257 At the time

of trial in June 2017, CardUX was still promoting, marketing, and soliciting sales of

CompoSecure cards.258

                               II.       LEGAL ANALYSIS

       The parties approach the case from different perspectives. For CompoSecure, the

dominant narrative involves its own failure to comply with the Related Party Provision,

which renders the Sales Agreement invalid and any breach irrelevant. For CardUX, the




       255
           Id.; see also JX 455 at 2 (Logan informing Members that CompoSecure had filed
litigation and “will continue to manage its relationship with CardUX in a ‘business as
usual’ manner pending the resolution of the Delaware litigation.”); Frantz Tr. 744-45.
       256
          See, e.g., JX 315; JX 319; JX 327; JX 346; JX 374; JX 376; JX 385; JX 390; JX
392; JX 396; JX 398; JX 402; JX 406; JX 410; JX 413; JX 420; JX 430; JX 432-36; JX
439-40; JX 442; JX 444-45; JX 448-49; JX 451-53; JX 457; JX 461; JX 463; JX 466-68;
JX 476; JX 481; JX 488; JX 493; JX 498; JX 503-04; JX 507. Flanagan testified extensively
at trial about CardUX’s continuing efforts to fulfill its obligations under the Sales
Agreement after the dispute over the Amazon Sale.
       257
             See JX 499; Logan Tr. 182-83.
       258
             Flanagan Tr. 517, 639-40.

                                             49
dominant narrative involves CompoSecure’s breaches of the Sales Agreement. CardUX

asserts two grounds for breach. First, CompoSecure breached Section 6.1 by failing to pay

a commission for the Amazon Sale. Second, after the dispute over the Amazon Sale arose,

CompoSecure breached Section 4.1 by failing to use commercially reasonable efforts to

support CardUX’s sales activities.

       Procedurally, CompoSecure sued first, seeking a declaratory judgment that the Sales

Agreement is invalid. CardUX counterclaimed for breach. Although CompoSecure is

formally the plaintiff, this decision structures the analysis using CardUX’s counterclaims.

First, CardUX is the natural plaintiff. CompoSecure’s refusal to pay a commission for the

Amazon Sale and to support CardUX’s activities gave rise to the dispute between the

parties. The natural response would have been for CardUX to sue. Second, as part of its

counterclaims, CardUX has to establish the existence of a valid contract, which is the

essence of CompoSecure’s claim. Because CardUX’s counterclaims encompass the

question of validity, they provide an orderly framework for analyzing the issues in the case.

A.     Breach of Section 6.1

       In the first of its two claims for breach of contract, CardUX contends that

CompoSecure breached Section 6.1 of the Sales Agreement by failing to pay commissions

on the Amazon Sale. The Sales Agreement specifies that it is governed by New Jersey

Law.259 To prevail on a claim for breach of contract under New Jersey law, “a party must



       259
          SA § 16.16. The Sales Agreement contains a forum selection provision requiring
that any disputes be litigated in federal district court in New Jersey or, if that court lacks
subject matter jurisdiction, a New Jersey state court sitting in Somerset County. Id. § 16.17.
                                             50
prove a valid contract between the parties, the opposing party’s failure to perform a defined

obligation under the contract, and the breach caused the claimant to sustained damages.”260

To establish liability, the party need not establish a specific amount of quantifiable

damages.261 The court addresses the quantum of damages when it determines a remedy.

       1.     The Existence Of A Valid Contract

       The governing New Jersey standard instructs the court to determine first whether

there is a valid contract. The Sales Agreement is a detailed, written agreement, drafted

initially by CompoSecure’s lawyers, and negotiated by sophisticated parties with the

assistance of counsel. It spans thirty-one pages. Logan signed it on behalf of CompoSecure

in her capacity as CEO; Kleinschmidt signed it on behalf of CardUX. In Section 11 of the




CompoSecure arguably breached this provision by filing suit in this court, but CardUX
waived any objection by opting to litigate here. I say “arguably” because CompoSecure’s
claim limited itself to the LLC Agreement, so there might be counterarguments under 6
Del. C. § 18-109(d). The parties have not raised those issues, and this decision intimates
no view about them.
       260
          EnviroFinance Gp. LLC v. Envtl. Barrier Co., LLC, 113 A.3d 775, 787 (N.J.
Super. Ct. App. Div. 2015); accord Sheet Metal Workers Int’l Ass’n Local Union No. 27
v. E.P. Donnelly, Inc., 737 F.3d 879, 900 (3d Cir. 2013) (“To prevail on a breach of contract
claim under New Jersey law, a plaintiff must establish three elements: (1) the existence of
a valid contract between the parties; (2) failure of the defendant to perform its obligations
under the contract; and (3) a causal relationship between the breach and the plaintiff’s
alleged damages.”).
       261
          City of Trenton v. Cannon Cochran Mgmt. Servs., Inc., 2011 WL 3241579, at *4
(N.J. Super. Ct. App. Div. Aug. 1, 2011) (“[L]iability for breach of contract does not
require proof of damage beyond the breach itself.”).

                                             51
Sales Agreement, both parties represented that the Sales Agreement was duly authorized

and constituted a valid and binding obligation, enforceable in accordance with its terms.262

       For purposes of establishing the existence of a contract that satisfies the traditional

requirements for contract formation under New Jersey law, this would seem like an easy

case. But six months after signing the Sales Agreement, four months after the Amazon

Sale, and shortly after conferring with litigation counsel, CompoSecure asserted that the

Sales Agreement was invalid because CompoSecure itself had failed to comply with the

Related Party Provision.

       CompoSecure’s reliance on the LLC Agreement raises choice of law questions.

Because CompoSecure’s invalidity claim rests on the LLC Agreement, CompoSecure

contends that validity must be evaluated under Delaware law. CardUX, by contrast,

contends that New Jersey law applies. In my view, New Jersey law governs the bulk of the

issues relating to validity. The exception is whether Logan had actual authority to sign the

Sales Agreement, where Delaware law controls.

       To determine what law applies to a breach of contract dispute, including the

question of validity, Delaware follows the Restatement (Second) of Conflict of Laws.263




       262
             SA § 11.
       263
          Certain Underwriters at Lloyds, London v. Chemtura Corp., 160 A.3d 457, 464
(Del. 2017).

                                             52
The first step in this approach is to “determin[e] if the parties made an effective choice of

law through their contract.”264 If they did, then:

       (1) The law of the state chosen by the parties to govern their contractual rights
       and duties will be applied if the particular issue is one which the parties could
       have resolved by an explicit provision in their agreement directed to that
       issue.

       (2) The law of the state chosen by the parties to govern their contractual rights
       and duties will be applied, even if the particular issue is one which the parties
       could not have resolved by an explicit provision in their agreement directed
       to that issue, unless either

              (a) the chosen state has no substantial relationship to the parties or the
       transaction and there is no other reasonable basis for the parties’ choice, or

              (b) application of the law of the chosen state would be contrary to a
       fundamental policy of a state which has a materially greater interest than the
       chosen state in the determination of the particular issue and which, under the
       rule of § 188, would be the state of the applicable law in the absence of an
       effective choice of law by the parties.

       (3) In the absence of a contrary indication of intention, the reference is to the
       local law of the state of the chosen law.265



       264
             Id.
       265
          Restatement (Second) of Conflict of Laws § 187 (1971). The Restatement
provides a more specific rule for contracts for the rendition of services, like the Sales
Agreement. It states:

       The validity of a contract for the rendition of services and the rights created
       thereby are determined, in the absence of an effective choice of law by the
       parties, by the local law of the state where the contract requires that the
       services, or a major portion of the services, be rendered, unless, with respect
       to the particular issue, some other state has a more significant relationship
       under the principles stated in § 6 to the transaction and the parties, in which
       event the local law of the other state will be applied.

Id. § 196 (emphasis added). Notably, the rule applies “in the absence of an effective choice
of law by the parties.” Id. cmt. c.

                                              53
The Restatement creates an exception to this framework for claims challenging the validity

of the choice of law provision itself, such as claims that “its inclusion in the contract was

obtained by improper means, such as by misrepresentation, duress, or undue influence, or

by mistake,”266 but this exception does not extend to broader challenges to the validity of

the agreement as a whole. The Delaware courts have adopted this view.267 In the Abry

decision, Chief Justice Strine held, while serving on this court, that an agreement’s choice

of law provision governed when the plaintiffs’ asserted a claim for intentional fraud as a

basis to invalidate an agreement.268 The Chief Justice reached this conclusion even though

the language of the choice of law provision focused solely on the contract itself. It stated:

“This Agreement shall be governed by, and construed in accordance with, the Laws of the

State of Delaware, regardless of the Laws that might otherwise govern under applicable

principles of conflicts of law.”269

       In this case, the Sales Agreement contains a choice of law provision that is broader

than the provision in Abry. Section 16.16 of the Sales Agreement states:

       Choice of Law. This Agreement, including all exhibits, schedules,
       attachments and appendices attached hereto and thereto, and all matters
       arising out of or relating to this Agreement, are governed by, and construed
       in accordance with, the Laws of the State of New Jersey, without regard to
       the conflict of laws provisions thereof to the extent such principles or rules


       266
             Id. § 187 cmt. b.
       267
          See Abry P’rs V. L.P. v. F & W Acq. LLC, 891 A.2d 1032, 1047 (Del. Ch. 2006)
(Strine, V.C.) (applying Delaware law to intentional fraud claim).
       268
             Id. at 1049-50.
       269
             Id. at 1046.

                                             54
       would require or permit the application of the Laws of any jurisdiction other
       than those of the State of New Jersey.270

Unlike the provision in Abry, this provision encompasses “all matters arising out of or

relating to this Agreement.” That is a broader clause that easily warrants the scope of the

interpretation given to the narrower choice of law clause in Abry.271

       The gist of CompoSecure’s objection to validity is that CompoSecure itself failed

to comply with the special requirements of the Related Party Provision. That assertion boils

down to a claim that Logan lacked actual authority to bind CompoSecure to the Sales

Agreement. That threshold question turns on the provisions of the LLC Agreement and

involves the internal affairs of CompoSecure as a Delaware limited liability company. For

that reason, it is governed by Delaware law.272

       Once that question has been answered, the choice of law provision requires that

New Jersey law govern all questions of contractual validity. Whether a contract is




       270
             SA § 16.16.
       271
          See generally John F. Coyle, The Canons of Construction for Choice-of-Law
Clauses, 82 Wash. L. Rev. 631, 701-03 (2017).
       272
           See Facchina v. Malley, 2006 WL 2328228, at *3 (Del. Ch. Aug. 1, 2006) (noting
that Delaware law “governs the internal affairs of a Delaware limited liability company,
regardless of its place of operations” and finding that, in the absence of LLC agreement
terms addressing governance of the LLC, “the default provisions of 6 Del. C. § 18-402”
controlled); Kronenberg v. Katz, 872 A.2d 568, 589 (Del. Ch. 2004) (Strine, V.C.) (noting
that once parties had formed a Delaware limited liability company, “Delaware law would
govern their relations with each other (i.e., the internal affairs of the organization they
created, the fiduciary duties owed to the members, and the contractual rights of the parties
to the LLC Agreement)”). See generally Robert L. Symonds, Jr. & Matthew J. O’Toole,
Delaware Limited Liability Companies § 4.09[E] (2012 Supp.).

                                            55
nevertheless valid and can be enforced against a counterparty on the facts of a given case,

even if the agent who signed the contract lacked actual authority, raises substantive

questions of contract law and implicates doctrines under agency law that go beyond actual

authority. In light of the choice of law provision in the Sales Agreement, New Jersey law

governs those questions.

         The interplay between New Jersey and Delaware law likewise raises questions about

the allocation and quantum of the burden proof. Here too, Delaware follows the

Restatement,273 which provides the following rule of decision:

         The forum will apply its own local law in determining which party has the
         burden of persuading the trier of fact on a particular issue unless the primary
         purpose of the relevant rule of the state of the otherwise applicable law is to
         affect decision of the issue rather than to regulate the conduct of the trial. In
         that event, the rule of the state of the otherwise applicable law will be
         applied.274

This court has held that allocating the burden of proof relates to the conduct of the trial and

presentation of the case, such that the law of the forum should apply.275 “But the question

of what the burden of proof is typically constitutes a policy judgment designed to affect

the outcome of the court’s decision on the merits.”276 Consequently, when parties choose




         273
               See In re IBP, Inc. S’holders Litig., 789 A.2d 14, 53 (Del. Ch. 2001) (Strine,
V.C.).
         274
               Restatement (Second) of Conflict of Laws § 133.

         See IBP, 789 A.2d at 53 (“The question of which party has the burden of proof
         275

may be seen as purely procedural.” (emphasis omitted)).
         276
               Id.

                                                56
the law of a particular forum to govern their relationship, they opt for the substantive

burden of proof—e.g., preponderance of the evidence, clear and convincing evidence,

proof beyond a reasonable doubt—that would apply under the law of that jurisdiction.277

       As the plaintiff asserting a claim for breach of contract, CardUX ordinarily would

bear the burden of proof on the question of validity.278 Procedurally, CompoSecure’s pre-

emptive claim for a declaratory judgment changed matters, because CompoSecure thereby

assumed the burden of proving invalidity.279 But in response to CompoSecure’s suit,

CardUX invoked the affirmative defense of ratification, where it bears the burden of

proof.280 To harmonize these competing burdens, this decision approaches the evidence as



       277
             Id.
       278
           See e.g., EnviroFinance, 113 A.3d at 787; Cumberland Cty. Improvement Auth.
v. GSP Recycling Co., Inc., 818 A.2d 431, 442 (N.J. Super. Ct. App. Div. 2003) (stating
that a party claiming damages bears “the burden of proof to establish all elements of its
cause of action, including damages”).
       279
           See San Antonio Fire & Police Pension Fund v. Amylin Pharm., Inc., 983 A.2d
304, 316 n.38 (Del. Ch. 2009) (“Because Amylin seeks a declaratory judgment as to its
right to approve, it bears the burden of proof here.”); Hexion Specialty Chems., Inc. v.
Huntsman Corp., 965 A.2d 715, 739 (Del. Ch. 2008) (“[T]he better view is that a plaintiff
in a declaratory judgment action should always have the burden of going forward.”); 26
C.J.S. Declaratory Judgments § 157 (2017) (“The plaintiff in an action for a declaratory
judgment normally has the burden of proving by a preponderance of the evidence that
conditions exist which justify an award of declaratory relief. The plaintiff must prove his
or her case in accordance with the general rules even if a negative declaration is sought.”
(internal citations omitted)).
       280
           See Yiannatsis v. Stephanis, 653 A.2d 275, 280 (Del. 1995) (placing the burden
of establishing ratification under Delaware law on the party asserting it); InteInet Int’l
Corp. v. ITT Corp., 2006 WL 2192030, at *14 (N.J. Super. Ct. App. Div. Aug. 4, 2006)
(placing the burden of establishing ratification under New Jersey law on the party asserting
it).

                                            57
if CompoSecure bore the burden of proof on the initial question of invalidity, but treats

CardUX as bearing the burden to prove ratification. Fortunately, under New Jersey law,

the quantum of proof is a preponderance of the evidence.281 This simplifies matters,

because when that standard applies, the burden of proof only comes into play when the

evidence is in equipoise.282 In this case, the evidence on validity is not in equipoise, and I

would make the same factual findings regardless of which party bore the burden of proof.283

                      a.     Logan Lacked Actual Authority.

       Logan signed the Sales Agreement on behalf of CompoSecure in her capacity as

CEO. “When a representative seeks to bind an entity to a contract, ordinary principles of

agency law come into play.”284

       [I]f a principal holds out a person and places him in such a position in the
       community that he is apparently authorized to deal with persons as the agent


       281
         Totaro, Duffy, Cannova and Co., LLC v. Lane, Middleton & Co., LLC, 921 A.2d
1100, 1108 (N.J. 2007).
       282
          See in re S. Peru Copper Corp. S’holder Deriv. Litig., 52 A.3d 761, 792 (Del.
Ch. 2011) (Strine, C.) (explaining that when the burden of proof is a preponderance of the
evidence, “the burden becomes relevant only when a judge is rooted on the fence post and
thus in equipoise”), aff’d sub nom. Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del.
2012).
       283
           At the end of the trial, to provide a framework for post-trial briefing, I instructed
the parties to proceed as if CardUX had the burden of proof on its claim for breach of the
Sales Agreement and CompoSecure had the burden of proving invalidity under the LLC
Agreement. This approach facilitated a seriatim briefing schedule. The more thorough
discussion here for purposes of rendering a decision supersedes my post-trial allocation for
purposes of briefing.

         ESG Capital P’rs II, LP v. Passport Special Opportunities Master Fund, LP,
       284

2015 WL 9060982, at *12 (Del. Ch. Dec. 16, 2015); see Penington v. Commonwealth Hotel
Constr. Corp., 156 A. 259, 262 (Del. Ch. 1931) (Wolcott, C.).

                                              58
       of the company or person, without any known restriction or limitation upon
       his authority, he may be so held out as to bind the principal. And the courts
       in this state have well said that, if a person is held out to third persons or to
       the public at large by his principal as having a general authority to act for
       him in a particular business or employment, he cannot limit his authority by
       private or secret instructions.285

“But if an agent’s authority is limited and the counterparty knows about the limitations,

then the agent cannot bind the principal beyond the scope of its authority.”286

       In this case, the Related Party Provision limited the ability of any agent to bind

CompoSecure to a transaction falling within its scope. It provides that CompoSecure can

“engage in any transaction or other arrangement (including . . . the rendering of any service

. . .)” with a Related Party or with an Affiliate of a member of the Board “only if such

transaction is at arm’s length and approved by the Board, the Investors and the Class A

Majority.”287 The Related Party Provision applied to the Sales Agreement, because

CardUX qualified as an Affiliate of Kleinschmidt, who was a member of the Board.

Consequently, CompoSecure could enter into the Sales Agreement only with the approval




       285
           Excelsior Ref. Co. v. Murphey, 73 A. 1040, 1040 (Del. Super. 1906); accord In
re Mulco Prods., Inc., 123 A.2d 95, 106 (Del. Super.), aff’d sub nom. Mulco Prods., Inc.
v. Black, 127 A.2d 851 (Del. 1956).
       286
           ESG Capital, 2015 WL 9060982, at *12; see Cohen v. Home Ins. Co., 97 A.
1014, 1017 (Del. Super. 1916) (“No rule is better settled than where a limitation on the
power of an agent is brought home to the person dealing with him, such person relies upon
any act in excess of such limited authority at his peril.” (internal quotation marks omitted)
(quoting Egan v. Ins. Co., 42 P. 611, 613 (Or. 1895))), aff’d, 111 A. 264 (Del. 1920); see
also State v. Edwards, 1995 WL 44267, at *4 (Del. Super. Jan. 31, 1995); Arthur Jordan
Piano Co. v. Lewis, 154 A. 467, 469 (Del. Super. 1930).
       287
             LLCA § 5.4.

                                              59
of the Board, the Investors, and the Class A Majority. The Sales Agreement did not receive

formal approval from the Board, the Investors, or the Class A Majority. As a result, Logan

did not have actual authority to enter into the Sales Agreement.

       CardUX responds by arguing that formal approval was not necessary. That is

incorrect; the LLC Agreement requires formal action. The Related Party Provision requires

Board approval and two member-level approvals (the Investors and the Class A Majority).

Section 4.1(k) specifies that the Board can take action either (i) at a meeting, at which “at

least three (3) members of the Board” must be present to “constitute a quorum for the

transaction of business,” or (ii) “by written consent of the members of the Board required

for approval of such decision, with at least ten (10) days’ prior written notice thereof to all

other members of the Board.”288 Section 3.4 provides that members can take action either

at a meeting or through action by written consent.289 Neither the Board nor the members

took formal action in this case.

       CardUX argues that, despite Logan’s lack of actual authority, CardUX could rely

on Logan’s signature on the Sales Agreement pursuant to Section 4.1(j) of the LLC

Agreement. It states:

       Reliance by Third Parties. Any Person dealing with the Company, other than
       a Member, may rely on the authority of the Board (or any Officer authorized
       by the Board) in taking any action in the name of the Company without
       inquiry into the provisions of this Agreement or compliance herewith,
       regardless of whether that action actually is taken in accordance with the


       288
             LLCA § 4.1(k).
       289
             Id. §§ 3.4(b)-(d).

                                              60
       provisions of this Agreement. Every agreement, instrument or document
       executed by the Board (or any Officer authorized by the Board) in the name
       of the Company with respect to any business or property of the Company
       shall be conclusive evidence in favor of any Person relying thereon or
       claiming thereunder that . . . such agreement, instrument or document was
       duly executed according to this Agreement and is binding upon the Company
       and . . . the Board or such Officer was duly authorized and empowered to
       execute and deliver such agreement, instrument or document for and on
       behalf of the Company.290

This decision refers to this section as the “Third Party Reliance Provision.”

       CompoSecure contends that CardUX cannot rely on the Third Party Reliance

Provision because of its affiliation with Kleinschmidt. Assuming for purposes of analysis

that CardUX could invoke the provision, it only enables a party to rely “on the authority of

the Board (or any Officer authorized by the Board)” and to treat as valid any agreement

“executed by the Board (or any Officer authorized by the Board).” CardUX has not cited

any “authority of the Board” on which it relied, and the Sales Agreement was not “executed

by the Board.” Logan authorized and executed the Sales Agreement as CEO, and CardUX

relied on her signature. Therefore, the question becomes whether Logan was “authorized

by the Board” to execute the Sales Agreement.

       The record does not contain any document in which the Board formally authorized

Logan to execute the Sales Agreement. To establish that Logan had authority, CardUX

observes that, before LLR invested in May 2015, Logan effectively ran CompoSecure by




       290
             Id. § 4.1(j).

                                            61
herself and had authority to execute all contracts.291 That is true, but irrelevant. As part of

the LLR investment, the parties entered into the LLC Agreement, which contained the

Related Party Provision. The LLC Agreement changed the rules.

       Anticipating this, CardUX argues that the Board reaffirmed Logan’s authority by

approving a matrix titled “Delegation of Authority” in July 2015.292 The matrix vested

Logan with “Unlimited Authority for all budgeted expenditures” under the heading “Non-

Manufacturing Spend.”293 Logan testified that “the matrix reaffirmed the way the Company

was managed before LLR bought in”294 and was intended to give management broad

discretion.295 By its terms, however, the delegation matrix did not confer authority on

Logan to enter into the Sales Agreement, because expenditures under the Sales Agreement

were not budgeted for 2015. CompoSecure prepared its budget for 2015 at the end of 2014,

and that budget did not contemplate the execution of the Sales Agreement. The budget for

2016 did contain items related to the Sales Agreement, but that budget post-dated the

execution of the Sales Agreement and could not have provided actual authority for Logan




       291
             Logan Tr. 283.
       292
             See PTO ¶ 33.
       293
             JX 100 at 25.
       294
             Logan Dep. 71-72.
       295
             See JX 89 at 2; Logan Tr. 286-87; Fitzsimmons Dep. 185-88.

                                              62
to sign the Sales Agreement in November 2015.296 Logan lacked actual authority to bind

CompoSecure when she executed the Sales Agreement.

       CardUX knew about the limitations on Logan’s authority. Kleinschmidt was a party

to the LLC Agreement as a direct signatory,297 as a member,298 and as a manager.299 In each

capacity, Kleinschmidt is deemed to have known about the Related Party Provision and its

implications for Logan’s ability to enter into the Sales Agreement. Moreover, Section 12.11

of the LLC Agreement expressly states that “[b]y executing this Agreement, each member

acknowledges that it has actual notice of . . . all of the provisions hereof . . . .”300 At trial,

Kleinschmidt testified that he never read the LLC Agreement and had not known about the

Related Party Provision.301 That testimony was credible, but a failure to read a contract



       296
             See Logan Tr. 208-09.

         Before LLR’s investment closed, Kleinschmidt executed the signature page for
       297

the LLC Agreement. JX 56 at 1.
       298
            Kleinschmidt was a member of CompoSecure. See LLCA sched. A (listing
Kleinschmidt on Schedule A as a member holding 1,081.97 Class B units). Because he was
a member, Kleinschmidt is deemed to be a party to the LLC Agreement. See 6 Del. C. §
18-101(7) (“A member . . . of a limited liability company . . . is bound by the limited
liability company agreement whether or not the member . . . executes the limited liability
company agreement.”).
       299
           As a member of the Board, Kleinschmidt was a manager. See LLCA § 4.1.
Because he was a manager, Kleinschmidt is deemed to be a party to the LLC Agreement.
See 6 Del. C. § 18-101(7) (“A . . . manager of a limited liability company . . . is bound by
the limited liability company agreement whether or not the . . . manager . . . executes the
limited liability company agreement.”).
       300
             LLCA § 12.11.
       301
        Kleinschmidt Tr. 894-97. As he explained, he wanted to receive the same
membership rights as LLR, and as long as that was true, he was not particularly interested
                                               63
does not justify its avoidance.302 When negotiating and ultimately executing the Sales

Agreement, Kleinschmidt acted as an agent of his principal, CardUX. Kleinschmidt’s

knowledge of the limitations on Logan’s authority is therefore imputed to CardUX.303

       In sum, the Related Party Provision limited Logan’s authority to act on behalf of

CompoSecure. CardUX knew of that limitation by virtue of Kleinschmidt’s knowledge.

The Sales Agreement was therefore unauthorized.




in spending the time to parse through a lengthy agreement. Id. Logan did not parse through
the agreement carefully either. Logan Tr. 266-70.
       302
           See, e.g., Pellaton v. Bank of N.Y., 592 A.2d 473, 477 (Del. 1991) (“A party to a
contract cannot silently accept its benefits, and then object to its perceived disadvantages,
nor can a party’s failure to read a contract justify its avoidance.”) (quoting Graham v. State
Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989)); W. Willow–Bay Court, LLC v.
Robino–Bay Court Plaza, LLC, 2009 WL 3247992, at *4 n.19 (Del. Ch.) (“‘[F]ailure to
read a contract provides no defense against enforcement of its provisions where the mistake
sought to be avoided is unilateral and could have been deterred by the simple, prudent act
of reading the contract.’” (quoting 27 Williston on Contracts § 70.113 (4th ed. 2009))),
aff’d, 985 A.2d 391 (Del. 2009) (ORDER).
       303
            See ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member,
LLC, 2012 WL 1869416, at *15 (Del. Ch. May 16, 2012) (“This basic principle of agency
law applies with equal force to LLCs. Eric acted on behalf of the Scion LLC members in
his capacity as Scion’s Executive Vice President and General Counsel. Eric’s knowing
silence and intent are imputed to them.”), rev’d in part on other grounds, 68 A.3d 665 (Del.
2013); B.A.S.S. Gp., LLC v. Coastal Supply Co., Inc., 2009 WL 1743730, at *7 n.72 (Del.
Ch. June 19, 2009) (“Delaware courts consistently have imputed to a corporation the
knowledge of an officer or director of the corporation when acting on its behalf.”);
Teachers’ Ret. Sys. of La. v. Aidinoff, 900 A.2d 654, 671 n.23 (Del. Ch. 2006) (Strine, V.C.)
(“[I]t is the general rule that knowledge of an officer or director of a corporation will be
imputed to the corporation.”).

                                             64
                       b.        Voidable, Not Void

       As CompoSecure sees it, Logan’s lack of actual authority at the time of signing

renders the Sales Agreement void and ends the analysis. That is not correct. Delaware law

distinguishes between void and voidable acts. Void acts are those the entity itself “has no

implicit or explicit authority to undertake or those acts that are fundamentally contrary to

public policy.”304 Stated differently, they are acts that the entity lacks the power or capacity

to effectuate.305 Voidable acts are within the power or capacity of an entity, but were not

properly authorized or effectuated by the representatives of the entity. 306 Voidable acts can

be validated by equitable defenses, such as ratification and acquiescence.307

       In this case, CompoSecure had the capacity and power to enter into the Sales

Agreement. Section 18-106(b) of the Delaware Limited Liability Company Act (the “LLC

Act”) recognizes that a duly formed LLC is a legally distinct entity that

       shall possess and may exercise all the powers and privileges granted by this
       chapter or by any other law or by its liability company agreement, together


       304
             Solomon v. Armstrong, 747 A.2d 1098, 1114 (Del. Ch. 1999).
       305
          See generally Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 648-653 (Del.
Ch. 2013) (discussing the concepts of corporate power and capacity for the analogous
corporate doctrine of ultra vires).
       306
             See generally id.
       307
          See Klaassen v. Allegro Dev. Corp., 106 A.3d 1035, 1047 (Del. 2014) (holding
that voidable act was “properly subject to equitable defenses” and finding that challenge
was “barred by the doctrine of acquiescence”); Michelson v. Duncan, 407 A.2d 211, 219
(Del. 1979) (“[V]oidable acts are susceptible to cure by shareholder approval while void
acts are not.”). See generally Nevins v. Bryan, 885 A.2d 233 (Del. Ch.) (holding that the
challenged actions were voidable and that the plaintiff’s challenge was barred by equitable
defenses), aff’d, 884 A.2d 512 (Del. 2005).

                                               65
       with any powers incidental thereto, including such powers and privileges as
       are necessary or convenient to the conduct, promotion or attainment of the
       business, purposes or activities of the limited liability company.308

This grant of authority necessarily includes the power to enter into contracts.309 Section 18-

107 of the Delaware LLC Act goes a step further and expressly grants LLCs the power to

enter into interested transactions:

       Except as provided in a limited liability company agreement, a member or
       manager may . . . transact . . . business with[] a limited liability company and,
       subject to other applicable law, has the same rights and obligations with
       respect to any such matter as a person who is not a member or manager.310

       CompoSecure’s LLC Agreement implements these grants of authority. Section 2.6

of the LLC Agreement states:

       Purposes and Powers. The nature of the business or purposes to be conducted
       or promoted by the Company is to engage in any lawful act or activity for
       which limited liability companies may be organized under the Act. The
       Company may engage in any and all activities necessary, desirable, or
       incidental to the accomplishment of the foregoing. Notwithstanding anything
       herein to the contrary, nothing set forth herein shall be construed as
       authorizing the Company to possess any purpose or power, or to do any act
       or thing, forbidden by law to a limited liability company organized under the
       laws of the state of Delaware. Subject to the provisions of this Agreement,
       the Company shall have the power and authority to take any and all actions
       necessary, appropriate, proper, advisable, convenient or incidental to or for
       the furtherance of the purposes set forth in this Section 2.6.311




       308
             6 Del. C. § 18-106(b).
       309
          See Symonds & O’Toole, supra, § 2.08 (describing implied powers of an LLC,
including the “power to make and enter into contracts”).
       310
             6 Del. C. § 18-107.
       311
             LLCA § 2.6.

                                              66
This specification of authority necessarily includes the power to enter into contracts.

Moreover, the Related Party Provision contemplates that CompoSecure has the power and

capacity to enter into interested transactions, and it establishes procedural requirements for

the valid exercise of the power and authority that the entity otherwise possesses. 312

       Because CompoSecure had the power to enter into the Sales Agreement and could

have done so if the proper approvals had been obtained, the Sales Agreement is voidable,

not void. The lack of authority that otherwise renders the Sales Agreement unenforceable

is therefore subject to being cured by equitable defenses such as ratification.

                     c.     Ratification

       CardUX contends that CompoSecure ratified the Sales Agreement. CardUX does

not invoke entity-based principles of ratification, which would involve one or more

decision makers at CompoSecure formally making the decisions necessary to authorize the

Sales Agreement.313 In my view, a claim of formal ratification would implicate the internal

affairs doctrine and be governed by Delaware law. Rather, CardUX invokes the agency-

based doctrine of implied ratification, or ratification by acquiescence, recognized by New




       312
          See Carsanaro, 65 A.3d at 651-52 (explaining distinction between existence of
corporate capacity or power and the duly authorized exercise of that power by the relevant
corporate actor).
       313
           See Gantler v. Stephens, 965 A.2d 695, 713 (Del. 2009) (describing the doctrine
of “classic ratification”).

                                             67
Jersey law, and which New Jersey courts have applied to validate contracts that otherwise

were not properly approved by an entity.314

       Under New Jersey law, “[i]t is well established that binding ratification of an

unauthorized contract by a corporation ‘will be implied from acquiescence or the

acceptance of the benefits of such contract; it being essential to implied ratification that it

and the acceptance of benefits be with knowledge of the facts.’”315 “Since it is the formation

of the contract with which the doctrine of ratification is concerned, it is the principal’s

acceptance of the existence of the contract that is dispositive, not its acceptance of benefits

thereunder. The latter circumstance is merely probative of the former, i.e., evidence from

which approval can be implied.”316 “It is also well established that silence on the part of

the corporation, i.e., failure to disaffirm the unauthorized act of its agent within a

reasonable time, will under certain circumstances amount to the acquiescence from which

ratification will be implied.”317 “The circumstances in which silence will amount to

ratification are those where, ‘according to the ordinary experience and habits of men, one




       314
            See, e.g., Johnson v. Hospital Serv. Plan of N.J., 135 A.2d 483, 486-87 (N.J.
1957) (applying doctrine of implied ratification to contract with municipal corporation and
collecting earlier cases); Am. Photocopy Equip. Co. v. Ampto, Inc., 198 A.2d 469, 473 (N.J.
Super. Ct. App. Div. 1964) (applying doctrine of implied ratification to license agreement
initially signed by corporate officer without proper authority).
       315
         Am. Photocopy, 198 A.2d at 473 (quoting Feist & Feist v. A. & A. Realty Co.,
145 A. 478, 479 (N.J. 1929)).
       316
             Id. at 473-74.
       317
             Id. at 474.

                                              68
would naturally be expected to speak if he did not consent.’”318 “One of the most important

of such circumstances is full knowledge of the nature and extent of the unauthorized act.”319

       In this case, after executing the Sales Agreement, CompoSecure accepted the

existence of the contract and treated it as valid and binding. CompoSecure did so through

its interactions with CardUX and by accepting the benefits of CardUX’s extensive efforts

to perform under the Sales Agreement.320 CompoSecure also recognized the existence of

the Sales Agreement by approaching CardUX about changes to the Approved Prospect list

as if the Sales Agreement was binding.321 CompoSecure and CardUX agreed to add one

company to the Approved Prospect list in order to enlist CardUX’s help in closing the

deal.322 These acts involved CompoSecure both accepting the Sales Agreement as binding

and accepting the benefits of the contract in the form of performance by CardUX.




       318
           Id. (quoting Restatement (Second) of Agency § 94 (1958)); see also Thermo-
Contr. Corp. v. Bank of N.J., 354 A.2d 291, 296 (N.J. 1976) (finding ratification by
acquiescence where unauthorized endorsements on checks were identified in November
1971 but no objection was made until May 1972); Ajamian v. Schlanger, 89 A.2d 702, 704
(N.J. Super. Ct. App. Div. 1952) (“Since this plaintiff, with full knowledge of the alleged
fraud, continued for more than six months to deal with the property as his own, and made
the monthly payments on the purchase price, his actions afford plenary evidence of an
election to abide by the contract; and once made, this election is irrevocable.”).
       319
             Am. Photocopy, 198 A.2d at 474.
       320
         See, e.g., JX 364; JX 372 at 18; JX 375; JX 391; JX 403-04; JX 408; JX 410; JX
418; JX 430.
       321
          See JX 173 at 1 (Discover); JX 185 at 1 (same); JX 200 at 1 (American Airlines);
JX 205 at 1 (same); JX 206 (same); Logan Tr. 302-04 (Discover).
       322
             JX 198 (American Airlines).

                                               69
      Internally, CompoSecure also accepted the existence of the contract. CompoSecure

included amounts in its budget for 2016 to reflect expenses contemplated by the Sales

Agreement.323 Although Logan “did not expect to see any significant business in

[2015],”324 she expected that sales to Approved Prospects would hit “$5 million in revenues

over the four years.”325 She treated the Sales Agreement as valid and binding.

      CompoSecure specifically accepted the existence of the contract and treated it as

valid and binding for purposes of events relating to Amazon. After hearing about Amazon’s

RFP, Logan observed that the order would trigger a commission under the Sales

Agreement,326 and she asked CardUX to use its influence to steer the business to Bank of

America, rather than Chase.327 When the Amazon Sale materialized through Chase, Logan

viewed the order as triggering a commission and sought to negotiate a compromise with

CardUX.328 When the initial disagreement hardened into a dispute, a series of

CompoSecure representatives sought to renegotiate the terms of Sales Agreement.329 At

each stage, CompoSecure treated the Sales Agreement as valid and binding.



      323
            See Logan Tr. 208-09, 288, 290-91; Fitzsimmons Dep. 160-63; Logan Dep. 67.
      324
            Logan Tr. 288.
      325
            Id. at 293.
      326
            See JX 213 at 1; JX 219.
      327
            JX 219; see also JX 227 at 1.
      328
            JX 219 at 1; Kleinschmidt Tr. 966-69; Logan Tr. 220-21, 316.
      329
        See JX 309 at 2-3 (notes from meeting between CardUX principals and
CompoSecure senior management); JX 393 (Tartavull’s efforts); Hollin Tr. 53-54
                                            70
       It was not until May 26, 2016, in a letter sent by its litigation counsel, that

CompoSecure took the position that the Sales Agreement had not been properly

authorized.330 Even then, CompoSecure continued to treat the Sales Agreement as valid

and accepted the benefits of CardUX’s continuing marketing efforts. In doing so,

CompoSecure seemingly relied on a provision which states that “[i]f either Party disputes

any amounts allegedly payable under this Agreement,” then “each Party shall continue

performing its obligations during any such dispute.”331 In my view, that section speaks to

disputes over the amount of a payment, not a contention that the Sales Agreement as a

whole is invalid. While the parties were arguing over the amount of the commission, that

section applied, but once CompoSecure escalated matters and took the position that the

Sales Agreement was void, the issue had grown beyond a dispute over payment.332 By the




(describing call with Kleinschmidt); Hollin Tr. 56-57 (describing further negotiations over
dispute); Kleinschmidt Tr. 967-69 (describing calls with Logan and Hollin).
       330
             JX 437; see also Logan Tr. 398.
       331
             SA § 6.3(b).
       332
           See Logan Tr. 319-20 (“[T]he whole point of this litigation is to find out whether
it’s valid or not.”).

                                               71
time of trial, CompoSecure had received the benefits of nearly two additional years of

marketing efforts,333 and those efforts generated additional business for CompoSecure.334

       On the facts of this case, CompoSecure’s conduct ratified the Sales Agreement. In

reaching this conclusion, I also have considered that, during the negotiation of the Sales

Agreement and at the time of signing, all of the significant actors believed that the Sales

Agreement was valid and binding. Hollin and Logan, who led the negotiations for

CompoSecure, believed they were working on a valid agreement and wanted to enter into

it.335 During the negotiations, they provided updates to other members of the Board, none

of whom raised objections to the validity of the agreement.336 Just before signing the Sales

Agreement, CompoSecure’s lawyers sent the final draft to Logan and Hollin. 337 Logan

forwarded it to Herslow and the rest of the senior management team. 338 No one raised

concerns about its validity.




       333
         See, e.g., JX 315; JX 319; JX 327; JX 346; JX 374; JX 376; JX 385; JX 390; JX
392; JX 396; JX 398; JX 402; JX 406; JX 410; JX 413; JX 420; JX 430; JX 432-36; JX
439-40; JX 442; JX 444-45; JX 448-49; JX 451-53; JX 457; JX 461; JX 463; JX 466-68;
JX 476; JX 481; JX 488; JX 493; JX 498; JX 503-04; JX 507.
       334
             See JX 499; Logan Tr. 182-83.
       335
             See JX 148; JX 156 at 1; Logan Dep. 59.
       336
         See JX 39, JX 48; JX 51; JX 95-96; JX 149; Logan Tr. 274-75, 347-48;
Fitzsimmons Dep. 139-42; Hollin Dep. 122-26, 163-64.
       337
             JX 164.
       338
             Id.

                                             72
       After Logan signed, the Board received a presentation during its December 2015

meeting that included a slide about the Sales Agreement. Although the Board did not

formally approve the Sales Agreement, there is no contemporaneous evidence indicating

that any director thought the Sales Agreement was invalid or opposed entering into it.

Tartavull, who was a new director at the time, testified that he would have opposed the

Sales Agreement if he had fully understood its terms. 339 He had not read the Sales

Agreement and only knew what was in the slide, which incorrectly described the

termination provision as a right to terminate on thirty days’ notice, rather than as a right to

terminate for breach with a cure period of thirty days. 340 The slide was drafted by

Fitzsimmons, approved by Logan, presented by Luft, and discussed at the meeting.341

Given the otherwise unanimous support for the Sales agreement, I doubt that Tartavull

actually would have opposed it had he known more at the time. Even accepting his

testimony, a Board majority comprising the three directors other than Kleinschmidt still

supported it.

       From the standpoint of equity, it is relevant that a majority of the Board, excluding

Kleinschmidt, supported the Sales Agreement. If someone had flagged the Related Party

Provision at the time, the disinterested members of the Board would have given the




       339
             Tartavull Tr. 1162-63.
       340
             JX 197 at 19.
       341
             Hollin Tr. 48-50; Logan Tr. 202, 277-79; Kleinschmidt Tr. 1064.

                                              73
necessary approval. The member-level approvals would have followed. Logan controlled

the vote of the Class A members,342 and she supported the Sales Agreement.343 Hollin

represented the investor members,344 and he supported the Sales Agreement as well.345

       In my view, it is also relevant for purposes of ratification that the Sales Agreement

contained the Authority Representations, in which CompoSecure represented that the Sales

Agreement was valid and binding. CompoSecure argues that CardUX could not have

reasonably relied on those representations because the LLC Agreement contained the

Related Party Provision. Given how the parties were aligned at the time, I do not think it is

reasonable to expect CardUX to have assumed the burden of ensuring that CompoSecure

supplied the proper internal approvals. Kleinschmidt and Frantz had been negotiating at

arm’s length with Logan and Hollin. CompoSecure’s outside counsel prepared the initial

draft of the Sales Agreement, which included the Authority Representations. If anyone

should have ensured that CompoSecure took the necessary action to make the Authority

Representations accurate, it was Logan, Hollin, and CompoSecure’s counsel.




       342
             PTO ¶ 22.
       343
           Logan Tr. 271-72 (testifying that she signed the Sales Agreement because she
believed it “was in the best interests of the company” and the Class A unitholders); see also
JX 169 at 1; Logan Dep. 59.
       344
             Hollin Tr. 106-07.
       345
          See JX 140 at 1; JX 172 at 1; Hollin Tr. 41-42, 125; see also Logan Tr. 244
(describing Hollin’s support for the Sales Agreement).

                                             74
       In an effort to defeat ratification, CompoSecure argued that it could not have known

that CardUX would interpret the Sales Agreement to require a commission on all sales to

Approved Prospects, regardless of whether CardUX played a role in generating the specific

sale.346 This argument advances a version of CompoSecure’s primary theory of contract

interpretation, which is addressed below. As discussed in that context, the evidence

convinces me that CardUX made its position clear to CompoSecure throughout the

negotiations, and CompoSecure accepted that position in the final Sales Agreement. Setting

that finding aside, the analysis for purposes of ratification turns on whether CompoSecure

treated the Sales Agreement as valid and accepted its existence. Whether the parties later

disputed its meaning is not relevant to that question. CompoSecure had full knowledge of

the Sales Agreement and its terms during the entire time when CompoSecure acted as if

the Sales Agreement was valid.

       On the facts of this case, CompoSecure’s actions were sufficient to ratify the Sales

Agreement and render it enforceable against CompoSecure under New Jersey law. The

record at trial supports the existence of a valid and binding contract. The first element of

CardUX’s claim for breach is satisfied.

       2.       The Opposing Party’s Failure To Perform A Defined Obligation

       For CardUX to prevail on its claim for breach of contract under New Jersey law, the

evidence at trial must establish that CompoSecure failed to perform a defined obligation.




       346
             Dkt. 151 at 13.

                                            75
In this case, the evidence at trial established that CompoSecure had an obligation to pay a

commission for the Amazon Sale, which CompoSecure refused to perform.

       Under New Jersey law, the “polestar of contract construction is to discover the

intention of the parties as revealed by the language used by them.”347 “Where the terms of

a contract are clear and unambiguous[,] there is no room for interpretation or construction

and the courts must enforce those terms as written.”348 “[T]he terms of the contract must

be given their plain and ordinary meaning.”349 A court will “endeavor to give effect to all

of a contract’s provisions. Such an interpretation ‘will be preferred to one which leaves a

portion of the writing useless or inexplicable.’”350 “A contract is ambiguous if its terms are

‘susceptible to at least two reasonable alternative interpretations,’ or when it contains

conflicting terms.”351




       347
          Karl’s Sales & Serv., Inc. v. Gimbel Bros., Inc., 592 A.2d 647, 650 (N.J. Super.
Ct. App. Div. 1991).
       348
          J.L. Davis & Assocs. v. Heidler, 622 A.2d 923, 926 (N.J. Super. Ct. App. Div.
1993) (citations omitted).
       349
          Schor v. FMS Fin. Corp., 814 A.2d 1108, 1112 (N.J. Super. Ct. App. Div. 2002)
(quoting Nester v. O’Donnell, 693 A.2d 1214, 1220 (N.J. Super. Ct. App. Div. 1997)).
       350
         Leary v. Pepperidge Farm, Inc., 2009 WL 2426345, at *9 (N.J. Super. Ct. App.
Div. Aug. 10, 2009) (internal citation omitted) (quoting Prather v. Am. Motorist Ins. Co.,
67 A.2d 135, 138 (N.J. 1949)).
       351
          Woodhaven Lumber & Millwork, Inc. v. Monmouth Design & Dev. Co., Inc.,
2014 WL 1326994, at *6 (N.J. Super. Ct. App. Div. Apr. 4, 2014) (citation omitted)
(quoting Nester, 693 A.2d at 1220).

                                             76
                         a.   The Obligation To Pay A Commission

       The plain language of the Sales Agreement entitles CardUX to a commission for the

Amazon Sale. Section 6.1 of the Sales Agreement states:

       Subject to Section 6.2, CompoSecure shall pay Sales Representative a
       commission on all sales of Products to Approved Prospects pursuant to the
       terms of this Agreement of fifteen percent (15%) of the Net Sales Price (the
       “Commission”). Notwithstanding anything to the contrary in this
       Agreement, for all purposes under this Agreement, a sale of Products shall
       be deemed to be a sale of Products to an Approved Prospect if (without
       duplication of sales): (a) a Non-Issuer Prospect purchases Products directly
       or indirectly from CompoSecure, (b) an Issuer purchases Products directly
       or indirectly from CompoSecure on its own behalf, or (c) any other Person
       (including an Issuer Prospect, a Personalization Partner or an Excluded
       Customer) purchases Products directly or indirectly from CompoSecure on
       behalf of, for the benefit of, pursuant to a contract with, or bearing the
       trademarks or other identifiable marks of, an Approved Prospect.352

Schedule 2 of the Sales Agreement identifies the Approved Prospects. It lists Amazon as

an Approved Prospect under the heading “Retail.”353 There is no dispute that the Amazon

Sale involved “Products.”

       Amazon, however, was not the actual purchaser of the credit cards that

CompoSecure sold in the Amazon Sale. Instead, Chase was the actual purchaser. This

aspect of the Amazon Sale reflected the inherent structure of a co-brand relationship, in

which the issuing bank makes the purchase as part of its agreement with the co-brand

partner. The second sentence of Section 6.1 addresses this issue by stating that “a sale of

Products shall be deemed to be a sale of Products to an Approved Prospect if . . . any other



       352
             SA § 6.1.
       353
             Id. sched. 2.

                                            77
Person (including an Issuer Prospect, a Personalization Partner or an Excluded Customer)

purchases Products directly or indirectly from CompoSecure on behalf of, for the benefit

of, pursuant to a contract with, or bearing the trademarks or other identifiable marks of, an

Approved Prospect.” This opinion refers to this sentence as the “Deemed Sale Provision.”

       For purposes of the Sales Agreement, Chase is an “Excluded Customer.” The Sales

Agreement defines an “Excluded Customer” as “any company that is not listed on

Schedule 2 . . . .”354 Chase is not listed on Schedule 2. Because Chase is an Excluded

Customer, the Amazon Sale fits easily within the plain language of the Deemed Sale

Provision, which identifies a purchase by an Excluded Customer as one example of “any

other Person” who can purchase cards under circumstances that are deemed to be “a sale

of Products to an Approved Prospect.” Those circumstances exist where the purchaser buys

cards “pursuant to a contract with, or bearing the trademarks or other identifiable marks of,

an Approved Prospect.” The Amazon Sale meets both criteria. Chase made the purchases

“pursuant to a contract with” Amazon. Separately, the resulting cards bear “the trademarks

or other identifiable marks of” Amazon.

       So far, the Amazon Sale meets the plain language of Section 6.1. It is deemed to be

a sale of Products to an Approved Prospect because Chase, an Excluded Customer,

purchased the cards “on behalf of, for the benefit of, pursuant to a contract with, or bearing

the trademarks or other identifiable marks of, an Approved Prospect.”




       354
             Id. § 1.

                                             78
       The language of the first sentence of Section 6.1, however, is made “Subject to

Section 6.2.” Titled “Commission Payment Terms,” Section 6.2 addresses the logistics of

paying a commission. Framed in six subsections, it addresses a variety of practical issues,

including that (i) CardUX gets paid a commission “only at such times and only to the extent

that” CompoSecure receives payment for the sale,355 (ii) CardUX gets paid on a quarterly

basis,356 (iii) CardUX gets paid in US dollars by check or wire transfer,357 and (iv) CardUX

can draw advances against future commissions of $10,000 per month for the first fifteen

months.358 Another subsection describes the period of time during which purchases by the

same Approved Prospect will qualify for additional commissions.359 Finally, Section 6.2(f)

identifies four circumstances in which CardUX “shall not be entitled to any Commission

or other compensation.”360 The second is “subject to Section 2.2 hereof, for any sale made

to an Excluded Customer.”361 This decision refers to this language as the “Excluded

Commission Clause.”




       355
             Id. § 6.2(b).
       356
             Id. § 6.2(c).
       357
             Id. § 6.2(d).
       358
             Id. § 6.2(a).
       359
             Id. § 6.2(e).
       360
             Id. § 6.2(f).
       361
             Id. § 6.2(f)(ii).

                                            79
      CompoSecure contends that the Excluded Commission Clause conflicts with the

Deemed Sale Provision and renders the Sales Agreement ambiguous. As CompoSecure

sees it, if CardUX receives a commission for the Amazon Sale under the Deemed Sale

Provision, it receives a commission for a sale to Chase, an Excluded Customer, and

therefore violates the Excluded Commission Clause.

      The interplay between the Excluded Commission Clause and the Deemed Sale

Provision does not create ambiguity. The language of the Sales Agreement recognizes that

issuing banks purchase credit cards both for their own proprietary programs and for co-

brand programs. For purposes of commissions, issuing banks come in two flavors. Some

are Approved Prospects, and the Sales Agreement refers to these issuing banks as “Issuer

Prospects.” CardUX is entitled to commissions for all of their purchases. This is true

whether the Issuer Prospect purchases cards for its proprietary programs or for a co-brand

program and regardless of whether the co-brand partner is an Approved Prospect.362 Other

issuing banks, such as Chase, are Excluded Customers. For convenience, this decision calls

them “Excluded Issuers.” CardUX is only entitled to commissions for purchases made by

Excluded Issuers when they are for a co-brand program with an Approved Prospect.

CardUX is not entitled to a commission when an Excluded Issuer purchases cards for its

in-house programs, like the Sapphire Card, or for a co-brand program where the partner is

not an Approved Prospect.



      362
          The list of Approved Prospects identifies twenty-three card issuers as Approved
Prospects. See SA sched. 2.

                                           80
       The plain language of the Excluded Commission Clause creates this structure by

stating generally that CardUX is not entitled to receive a commission for a sale to an

Excluded Customer. The Deemed Sale Provision carves out an exception to this prohibition

for deals in which an issuer purchases cards as part of a co-brand program with an

Approved Prospect. If the issuing bank is already an Approved Prospect, then CardUX is

entitled to a commission without reference to the Deemed Sale Provision. The provision

only becomes relevant for purchases by persons who are not Approved Prospects, including

purchases by Excluded Issuers. Under ordinary principles of contract interpretation, a

specific exception like the Deemed Sale Provision controls over a broad prohibition like

the Excluded Commission Clause.363 Nevertheless, to make the relationship express, the

Deemed Sale Provision states that it applies “[n]otwithstanding anything to the contrary in

this Agreement” and “for all purposes under this Agreement.”364 No conflict exists.

       The same analysis applies to other provisions in the Sales Agreement that prohibit

sales to Excluded Customers and which CompoSecure cites to support its claim of conflict.




       363
           Assisted Living Assocs. Of Moorestown, L.L.P. v. Moorestown Twp., 31 F. Supp.
2d 389, 399 (D.N.J. 1998) (“In New Jersey, it is a well-settled principle of contract
interpretation that, in construing the contract as a whole, specific terms or clauses control
general terms or clauses.”); see also Bauman v. Royal Indem. Co., 174 A.2d 585, 590 (N.J.
1961) (“In the interpretation of a contractual instrument, the specific is customarily
permitted to control the general.”); Wasserstein v. Kovatch, 618 A.2d 886, 892 (N.J. Super.
Ct. App. Div. 1993) (same).
       364
             SA § 6.1.

                                             81
One is Section 2.2, which generally provides that CardUX cannot sell to Excluded

Customers. In its entirety, Section 2.2 states:

       Excluded Customers. Sales Representative shall not solicit orders from
       Excluded Customers during the Term. In the event Sales Representative
       receives an unsolicited communication from an Excluded Customer
       regarding the sale of Products, Sales Representative shall promptly notify
       CompoSecure, and CompoSecure shall determine whether such Excluded
       Customer should be added to Schedule 2 and be deemed an Approved
       Prospect, and whether Sales Representative should therefore be entitled to
       continue communicating with such Excluded Customer regarding the sale of
       Products. Unless such Excluded Customer becomes an Approved Prospect
       (and, in such event, Sales Representative therefore becomes entitled to
       receive the Commission on sales to such former Excluded Customer during
       the Term), Sales Representative is not entitled to any Commission or other
       compensation for any sale made by CompoSecure or any other Person to an
       Excluded Customer. 365

The plain language of Section 2.2 accomplishes two things: (i) it establishes a general

prohibition on sales to Excluded Customers, and (ii) it provides a means for CardUX to

earn a commission for sales to an Excluded Customer if the initial contact was unsolicited.

       CompoSecure contends that triggering a commission under the Deemed Sale

Provision would allow CardUX to sell to an Excluded Customer other than by using the

exception for an unsolicited approach. This contention fails to recognize the distinction

between (i) a sale to an Excluded Customer, which could take the form of an Excluded

Issuer either buying for its own proprietary programs or for a co-brand partner that is not

an Approved Prospect, and (ii) a deemed sale to an Approved Prospect, which can take

place through an Excluded Issuer. The Excluded Commission Clause addresses the former.




       365
             Id. § 2.2.

                                              82
It is “subject to Section 2.2” because that section creates a path by which a commission

can be paid for a sale to an Excluded Customer even when that sale would not qualify under

the Deemed Sale Provision. The Deemed Sale Provision addresses the latter. A deemed

sale does not need to follow the path in Section 2.2 because the Excluded Issuer is making

the purchase indirectly on behalf of an Approved Prospect. Once again, the specific

exception in the Deemed Sale Provision controls.

       CompoSecure next cites Section 3.5 to support its claim of conflict. Titled

“Prohibited Acts,” it states:

       Notwithstanding anything to the contrary in this Agreement, neither Sales
       Representative nor its Personnel shall directly or indirectly:

                                      *   *    *

       (c) subject to Section 2.2 hereof, sell, market, advertise, promote, solicit the
       sale of or offer to sell any Products to an Excluded Customer . . . .366

Again, CompoSecure contends that compensating CardUX for a sale to Chase would

conflict with this provision by permitting CardUX to sell, market, and solicit business from

an Excluded Customer.

       There is no conflict, and the same reasoning applies. Section 3.5(c) broadly prohibits

sales to “Excluded Customers,” which encompasses not only Excluded Issuers but also the

universe of co-brand partners other than those identified on Schedule 2. Section 3.5(c)

prohibits CardUX from approaching Excluded Customers. For an Excluded Issuer like




       366
             Id. §§ 3.5, 3.5(c).

                                              83
Chase, this means that CardUX cannot approach Chase directly. What Section 3.5(c) does

not address is the fact that, by approaching co-brand partners that are Approved Prospects,

CardUX’s efforts could lead to an Excluded Issuer making purchases on behalf of an

Approved Prospect. The resulting sale complies fully with Sections 3.5(c) and 2.2 because

CardUX has not contacted an Excluded Customer. The question instead is whether CardUX

receives a commission for the sale. The Deemed Sale Provision makes it clear that a

commission is due.

       Finally, CompoSecure cites Section 2.1 as a source of conflict. Section 2.1 appoints

CardUX as “CompoSecure’s exclusive independent sales representative with respect to the

sale in the United States of Products to Approved Prospects during the Term.”367

CompoSecure observes that Section 2.1 does not appoint CardUX as CompoSecure’s

representative for sales to Excluded Customers.368 That is consistent with the overall

structure of the Sales Agreement. The parties did not authorize CardUX to sell directly to

Excluded Customers. The parties did agree that CardUX could sell to Approved Prospects.

The Deemed Sale Provision makes clear that if any person, including an Excluded Issuer

like Chase, purchases cards for an Approved Prospect, then the sale is deemed to be a sale

to an Approved Prospect.




       367
             Id. § 2.1.
       368
             Dkt. 146 at 43.

                                            84
      Section 6.1 thus requires that CompoSecure pay CardUX a commission for the

Amazon Sale. Even though Chase, an Excluded Customer, actually made the purchase, the

sale is deemed to be a sale to an Approved Prospect under the Deemed Sale Provision.

                      b.   The Amount of the Commission

      CompoSecure has not paid CardUX a commission for the Amazon Sale.

CompoSecure contends that, even if the Sales Agreement requires a commission,

CompoSecure has not breached the Sales Agreement because the amount of the resulting

commission is zero.

      The plain language of Section 6.1 of the Sales Agreement entitles CardUX to a

commission for the Amazon Sale equal to 15% of the Net Sales Price. The Sales Agreement

defines Net Sales Price as follows:

      “Net Sales Price” means the sales price (exclusive of sales tax, freight,
      duties and other transfer taxes or fees, and after applying any discounts,
      credits, rebates or adjustment) actually payable by an Approved Prospect for
      Products sold to such Approved Prospect. Notwithstanding anything to the
      contrary in the foregoing, Net Sales Price does not include: (a) the value of
      any items that are furnished by CompoSecure to Approved Prospects without
      cost to such Approved Prospects (for example, samples, prototypes, or free
      products furnished as part of any advertising or promotion program); (b)
      amounts that CompoSecure receives under a Purchase Contract that are
      identified in such Purchase Contract as being paid in exchange for services,
      technical assistance, technical data or documentation furnished to the
      Approved Prospect by CompoSecure; and (c) any reimbursement that is
      received by CompoSecure for taxes, customs, duties, and the like, as well as
      the actual cost to CompoSecure of packing, crating, transportation and
      insurance during such transportation and separately charged to an Approved
      Prospect (including a small order handling charge for any Purchase Contract




                                           85
       requiring CompoSecure to ship Products in less than its standard box-lot
       quantities).369

Because the definition focuses on amounts “actually payable by an Approved Prospect,”

CompoSecure contends that the commission turns on how much money, if any, comes from

the Approved Prospect. For the Amazon Sale, Amazon has not and will not pay any

amounts. As the issuing bank, Chase purchases the cards and pays the amounts.

CompoSecure’s reasoning leads to a counterintuitive result: A sale triggers a 15%

commission under Section 6.1, but that calculation generates zero dollars because the

issuing bank is the actual purchaser.

       When the definition of “Net Sales Price” is read together with the Deemed Sale

Provision, it is obvious what the contract means. The Deemed Sale Provision states that

“for all purposes under this Agreement, a sale of Products shall be deemed to be a sale of

Products to an Approved Prospect.” One of those “purposes” is calculating the Net Sales

Price. Purchases of cards by “any other Person (including . . . an Excluded Customer)” are

deemed to be purchases by the Approved Prospect for purposes of the Net Sales Price.

Purchases of cards by Chase are deemed to be purchases by Amazon for purposes of the

Net Sales Price.

                       c.   The Extrinsic Evidence

       Under New Jersey law, a court may consider extrinsic evidence to help interpret the

plain language of an agreement.




       369
             SA § 1.

                                           86
       Evidence of the circumstances is always admissible in aid of the
       interpretation of an integrated agreement, even where the contract is free
       from ambiguity, not for the purpose of changing the writing, but to secure
       light by which its actual significance may be measured. Such evidence is
       adducible simply as a means of interpreting the writing, [] not for the purpose
       of modifying its terms, but to assist in determining the meaning of what has
       been said. So far as the evidence tends to show, not the sense of the writing,
       but an intention wholly unexpressed, it is irrelevant. We are not at liberty to
       introduce and effectuate some supposed unrevealed intention. The actual
       intent of the parties is ineffective unless made known in some way in the
       writing. It is not the real intent but the intent expressed or apparent in the
       writing that controls.370

In this case, the extrinsic evidence confirms that a commission is due.

       The Factual Background section details the negotiating history of the Sales

Agreement. The back and forth confirms that CardUX’s entitlement to a commission does

not depend on establishing a connection between its marketing efforts and a particular sale.

CompoSecure attempted to introduce efforts clauses, but CardUX consistently deleted

them. After six months of negotiations, the final Sales Agreement omitted any efforts

clause. To make CardUX’s commissions contingent on showing a link between its efforts

and a sale would give CompoSecure a deal point that it conceded at the bargaining table.

       The extrinsic evidence of CompoSecure’s response to the Amazon Sale similarly

indicates that CardUX is entitled to a commission.

               When Logan first learned that CompoSecure might receive an order
                from Amazon, she emailed Hollin commenting. “Yikes, Kevin and
                Paul would get 15%.”371



       370
          Newark Publ’rs Ass’n v. Newark Typographical Union, No. 103, 126 A.2d 348,
353 (N.J. 1956) (citations omitted).
       371
             JX 213 at 1.

                                             87
               Logan later sent an email bemoaning the fact that CompoSecure
                “didn’t insist on a lower commission” for Chase orders “since the
                whole point is to lower the concentration.”372 Hollin replied that
                CompoSecure should “live with the deal as agreed.”373

               After Logan challenged Kleinschmidt over CardUX’s entitlement to
                a commission, Hollin told her that CompoSecure did not have a strong
                position in denying CardUX’s commission.374

               CompoSecure prepared a Board deck that discussed the financials of
                the Amazon deal, the deck included the impact of CardUX’s
                commission.375

Taken as a whole, the most persuasive extrinsic evidence supports the plain language result.

       In an attempt to show otherwise, CompoSecure develops two broad themes, then

relies on them to contend that the Sales Agreement cannot mean what it says. First, citing

its customer concentration issue with Chase, CompoSecure argues that the purpose of the

Sales Agreement was to diversify away from Chase. CompoSecure then attacks the

Amazon Sale as increasing, rather than decreasing, its customer concentration problem.

Second, by excising snippets from emails, CompoSecure contends that CardUX agreed to

“pay for performance” and only expected to be paid work it actually did. CompoSecure

then attacks the commission for the Amazon Sale as an example of pay without

performance that would reward CardUX with a commission for no work. These themes




       372
             JX 219.
       373
             JX 226 at 1.
       374
             JX 311.
       375
             JX 356 at 10, 508.

                                             88
provide good rhetorical fodder, but they cannot override the plain language of the Sales

Agreement or the weight of the extrinsic evidence.

                              i.   The Customer Concentration Theme

      CompoSecure now contends that it hired CardUX to address its customer

concentration problem by diversifying its revenue sources away from Chase. It follows,

says CompoSecure, that the parties could not have intended to compensate CardUX for

generating more business from Chase.

      It is true that Kleinschmidt identified the Chase-customer-concentration issue

during due diligence and that this issue remained a concern for CompoSecure, but it was

not the driving force behind the Sales Agreement. The goal of diversifying away from

Chase never came up, either during the early discussions about the relationship or during

the subsequent negotiations over the Sales Agreement.376 The Sales Agreement itself does

not mention customer concentration or say anything about Chase. Nor does it contain any

disincentives for sales to co-brand partners that had programs with Chase. As Logan

ruefully noted in December 2015, after the prospect of the Amazon Sale arose, the Sales

Agreement does not even provide for a lower commission on sales through Chase.377

Although Chase is an Excluded Customer by dint of not appearing on the Approved

Prospects list, the list identified seven co-brand partners who already had credit-card




      376
            Frantz Tr. 675.
      377
            JX 219.

                                           89
programs with Chase.378 After CardUX began working, it marketed to several of those

prospects with CompoSecure’s knowledge and support.379

       Only after the Amazon Sale did Logan assert for the first time that “the whole point”

of the Sales Agreement was “to lower the concentration” with Chase.380 That is not what

the discussions and negotiations show, nor is it supported by the structure of the Sales

Agreement. CompoSecure wanted to grow its overall sales, and the Sales Agreement

incentivized CardUX to assist in that goal.

       Although I reject CompoSecure’s ex post facto claim that “the whole point” of the

Sales Agreement was to diversify away from Chase, I accept that one of CompoSecure’s

reasons for hiring CardUX was to address its customer-concentration risk. The relationship

accomplished this in two ways. First, the Sales Agreement identified twenty-three credit

card issuers as Approved Prospects, and it incentivized CardUX to pursue them by

compensating CardUX for all of their purchases, including for their own proprietary

programs. For CompoSecure, those sales would come from issuing banks other than Chase.

       Second, the strategy of approaching co-brand partners indirectly addressed the

underlying business risks created by Chase’s disproportionate role. Customer

concentration presented a problem, not simply because of the volume of business that came




       378
             JX 533; see also Flanagan Tr. 598-99; Frantz Tr. 652; Logan Tr. 315, 345-46.
       379
             See JX 305; JX 401; JX 529.
       380
             JX 219.

                                              90
from Chase, but because Chase made those purchases for its proprietary Sapphire Card

program. Chase had control over that program and could choose whether, and to what

degree, to offer metal cards. Chase historically bought cards when needed and would not

enter into a long-term agreement, which hampered CompoSecure’s ability to plan.

       As Kleinschmidt explained at trial, co-brand agreements mitigated these risks. Once

the requirement to buy metal cards became part of a multi-year co-brand agreement, the

issuing bank was locked in, and the resulting orders would be more predictable and durable.

Formally the customer would remain Chase, but in reality, the ultimate customers would

be the multiple co-brand partners who had contractual rights to metal cards.381

       CompoSecure has correctly pointed out that no contemporaneous documents

explain the benefits of order durability, but this is because the issue of customer

concentration never came up. The order durability concept strikes me as intuitively correct.

If customer concentration had been a focal point, then Kleinschmidt or Frantz would have

explained the benefits provided by co-brand agreements.

       In my view, the evidence does not support CompoSecure’s claim that because

customer concentration was a significant concern during LLR’s due diligence, and for

CompoSecure generally, the parties must not have intended for CardUX to receive

commissions for co-brand sales involving Chase. My sense of the extrinsic evidence is that




       381
             Kleinschmidt Tr. 910-13.

                                            91
it shows precisely the opposite: CardUX expected to be paid for co-brand sales involving

Excluded Issuers, and CompoSecure understood this.

                            ii.      The Pay For Performance Theme

       CompoSecure also contends the Sales Agreement was intended to be a “pay for

performance” agreement and that CardUX represented that it would not get paid for work

it did not do. Because the record demonstrated that CardUX’s efforts did not play a role in

generating the Amazon Sale, CompoSecure argues that paying CardUX a commission

would result in “pay regardless of performance.”382 CompoSecure uses this theme to argue

that the parties must have envisioned an implied efforts clause.

       As a threshold matter, the “pay for performance” theme ignores the distinction that

the parties drew between the sales and marketing efforts that CardUX would pursue and

the mechanism by which CardUX would be paid. From the outset, the CardUX principals

proposed to educate their industry contacts about metal cards. CardUX did not envision

pitching purchasing departments to solicit orders. Section 3.1 of the Sales Agreement

memorialized the types of efforts that CardUX was contractually obligated to undertake.

The Sales Agreement was not a “no efforts” contract.

       Because of the nature of their sales efforts, the CardUX principals consistently

rejected any requirement that they establish a connection between their efforts and a

particular sale. CompoSecure eventually agreed, and the Sales Agreement entitles CardUX




       382
             Dkt. 146 at 1, 42; see also Hollin Tr. 58; Logan Tr. 205-06.

                                               92
to commissions on all sales to Approved Prospects. This bright-line rule creates the

potential for CardUX to earn a commission when its efforts have not played a role in a sale

to an Approved Prospect, but it also creates the potential for CompoSecure to receive sales

without paying commissions if CardUX’s efforts result in sales for parties other than

Approved Prospects. The arrangement is reciprocal.

       Equally important, CardUX receives compensation only if CompoSecure

determines that a sale is beneficial. The Sales Agreement gives CompoSecure sole

discretion over whether to accept any sale to an Approved Prospect383 and control over the

contents of the list of Approved Prospects.384 For the Amazon Sale, Logan recognized that,

although the sale increased the amount of business going through Chase, the increased

volume was highly valuable to CompoSecure. She wrote Hollin, “Oh boy Mitchell . . . . I

know that we are trying to decrease the customer concentration but it’s hard to say no to

70% margin business.”385

       In constructing its “pay for performance” theme, CompoSecure has collected a

handful of references from a smattering of emails in which the CardUX principals

mentioned being paid for their performance or compensated for the work they did. For




       383
           SA §§ 5.1, 5.2. CardUX acknowledged that “CompoSecure’s exercise of
discretion may result in no Commission owed, or a reduction or delay in the payment of
Commission owed, to [CardUX] under this Agreement.” Id. § 5.2.
       384
             See id. §§ 2.2, 3.3.
       385
             JX 216; Logan Tr. 319.

                                            93
starters, CompoSecure gets its “pay for performance” soundbite from a March 2015 email

in which Kleinschmidt first proposed an independent sales organization “that sources new

business for [CompoSecure] primarily (or solely) on a pay for performance basis.”386 From

my review of the record, I believe both sides understood Kleinschmidt to mean that

CardUX would get paid for performance in the sense that any payment would depend on

growth in CompoSecure’s sales. If CompoSecure’s sales did not grow, then CardUX would

not get paid. He was not suggesting that CardUX would have to show a causal connection

between its efforts and the sale.

       Along similar lines, CompoSecure extracts language from an email that Frantz sent

to Kleinschmidt and Flanagan on June 11, 2015, in which he stated, “we should only get

paid on work that we do.”387 Taking this line out of context, CompoSecure argues that the

CardUX principals thought they should not get paid if they did not achieve sales. Restored

to its proper context, Frantz was addressing a narrow situation in which a personalization

partner secured business for CompoSecure. The full sentence read: “I added a situation

where they [CompoSecure] don’t pay us anything – where a perso partner gets a deal

without us having any presentation or pitch with the company – that just seems fair to me

– we should only get paid on work that we do.”388 Frantz’s proposal sought to address




       386
             JX 32 at 2.
       387
             JX 85 at 1.
       388
             Id.

                                           94
Logan’s concern about double commissions. In response, Frantz offered language that

required CardUX to be meaningfully involved where the personalization partner made the

sale.389 This was the only proposal CardUX ever made that involved an efforts clause.390

       CompoSecure next cites an email from June 9, 2015, in which Frantz reported on

his discussions with Logan about how long CardUX would receive commissions for

subsequent purchases by an Approved Prospect. Logan told Frantz that CompoSecure was

“comfortable with providing perpetual commissions as long as your Team is meaningfully

involved.”391 Frantz and Kleinschmidt wondered what she had in mind, so Frantz asked.

He reported to Kleinschmidt:

       Her thought was that we stay involved in the sales process with the partner
       over time – make sure they’re happy, collect information if we can, etc. . . . .
       Her comment though was that she didn’t want us to “just set it up and then
       get paid for doing nothing[.]”392

Rather than demanding that CardUX show that its efforts led to a sale, Logan was

concerned about CardUX following up after the sale.393



       389
             Id. at 1.
       390
             Logan Tr. 338-39.
       391
             JX 93 at 3.
       392
             Id. at 2.
       393
           To the same end, CompoSecure relies on an email that Logan sent to a lawyer
summarizing the terms of the proposed agreement. Under the heading “Process,” the email
stated: “They will be compensated for any Compo product purchase by an approved
prospect that is initiated during the term of our contract or for their prospects that become
clients for the following 2 years after the termination of the contract.” JX 95 at 4. The term
sheet provided that CardUX would not earn a fee when “they cannot prove meaningful
involvement in selling the co-brand partner and the new sale results in compensation to a
                                             95
      CompoSecure put the most emphasis on an email that Kleinschmidt sent on

September 14, 2015, which stated: “We are definitely not looking to get credit for work

that has been done and orders that would take place absent our efforts.”394 Restored to its

proper context, this sentence formed part of Kleinschmidt’s proposal to add three

companies to the Approved Prospect list where CompoSecure had “already made inroads.”

Kleinschmidt was saying that if the three companies were added, then CardUX would only

seek compensation for success beyond what CompoSecure had accomplished.

Kleinschmidt labeled the request a “secondary / non contract” issue. His email cannot

reasonably be read as overriding the balance of the negotiations and the plain language of

the Sales Agreement.

      These scattered snippets do not outweigh the overall course of the negotiations.

After CompoSecure proposed that CardUX only receive compensation for sales to an

identified list of prospects, the parties went back and forth over whether CardUX would

have to satisfy some type of efforts clause. CardUX insisted on receiving compensation for

sales to Approved Prospects without any type of efforts clause. Logan and Hollin

understood CardUX’s position and they ultimately agreed to it. The language of the Sales

Agreement reflected the parties’ shared understanding about what CardUX would be doing

and how they would get paid.




personalization partner.” Id. The “meaningful involvement” language addressed the
personalization partner issue.
      394
            JX 133 at 2.

                                            96
       In my view, what caused the problem in this case was not any misunderstanding or

sharp dealing. Instead, it was Logan’s expectation that CardUX would have to educate the

market and work its contacts before any meaningful sales would come along. To the

detriment of the parties’ relationship, the Amazon Sale arrived so quickly that it raised

obvious questions about whether CardUX’s efforts could have had any conceivable role.

Plus, it was such a large sale that it made the bright-line arrangement feel unfair. If the

Amazon Sale had happened a year later, the parties would have celebrated together.

       In hindsight, the parties might have agreed to a ramp-up period before commissions

could be triggered to prevent a near-term windfall. If CompoSecure had asked for such a

period, then CardUX likely would have asked for a symmetrical wind-down period.

Instead, the parties opted for bright-line rules. The Sales Agreement has a bright-line start

date, a bright-line end date, and a bright-line payment mechanism. In my view, the

evidence does not support CompoSecure’s claim that, because CardUX made references

to “pay for performance” or to getting paid for work they did, the court should override the

plain terms of the Sales Agreement.

       3.     CardUX’s Damages

       Under New Jersey law, the final element that CardUX must establish for a claim for

breach of contract is the existence of damages. CardUX suffered damages because

CompoSecure did not pay its commission for the Amazon Sale. The specific amount of

harm will be considered when addressing the proper remedy.




                                             97
B.    Breach of Section 4.1

      In the second of its two claims for breach of contract, CardUX asserts that

CompoSecure violated its obligation under Section 4.1 to use commercially reasonable

efforts to support CardUX’s sales activities. This decision has already concluded that the

Sales Agreement was a valid contract between the parties. For CardUX to prevail on this

claim for breach, the record must demonstrate that CompoSecure failed to perform a

defined obligation and that the breach caused CardUX to suffer harm.395

      Section 4.1 of the Sales Agreement provides that “[d]uring the Term, CompoSecure

shall use commercially reasonable efforts to support the sales and servicing efforts of

[CardUX] contemplated by this Agreement.”396 Dovetailing with that obligation, Section

6.2(e) states that “CompoSecure shall refrain from intentionally taking any action, the

primary purpose of which is to . . . reduce the Commission payable to the Sales

Representative from sales of Products to any Approved Prospect.”397

      CardUX proved at trial that CompoSecure failed to use commercially reasonable

efforts to support CardUX. Instead, CompoSecure intentionally obstructed CardUX’s

marketing efforts for the primary purpose of reducing its commissions. Whatever the term

commercially reasonable efforts might require in terms of affirmative support for a




      395
            See EnviroFinance, 113 A.3d at 787.
      396
            SA § 4.1.
      397
            Id. § 6.2(e).

                                           98
counterparty’s efforts, it certainly precludes actively interfering with a counterparty’s

efforts.398

       In this case, the evidence demonstrates that, after the dispute over the Amazon Sale

arose, CompoSecure instructed CardUX not to speak with any Approved Prospects who

issued their cards through Chase.399 CompoSecure also refused to provide CardUX with

samples for Disney and for industry consultants.400 Logan later broadened these

restrictions, shutting down CardUX’s efforts to pursue opportunities with other non-Chase

Approved Prospects, such as Qantas.401 CompoSecure took these steps to pressure CardUX

into agreeing to accept lower commissions on business that went through Chase.402 Logan

similarly issued a “pause” on providing support to CompoSecure, not because of capacity




       398
           See Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264, 273 (Del.
2017) (noting that commercially reasonable efforts “placed an affirmative obligation on
the parties” in the merger context “to take all reasonable steps to . . . complete the
transaction”); NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 18 (Del. Ch. 2009) (holding
it was not commercially reasonable to go “radio silent” and delay the flow of information
in merger discussions); see also Kenneth A. Adams, A Manual of Style for Contract
Drafting 163 (3d ed. 2013) (noting that recent cases have held the appropriate standard is
one of diligence).
       399
         Logan Tr. 395-96 (Logan describing her instruction to CardUX not to talk to any
co-brand partner that issued its cards through Chase); see also JX 350 at 2.
       400
              See JX 350 at 2.
       401
         See JX 438 at 1 (CompoSecure instructing CardUX not to discuss metal cards
with Qantas, despite Qantas being an Approved Prospect).
       402
              Id. at 1; JX 354 at 1-2.

                                            99
constraints or for other business reasons but, rather, in preparation for litigation with

CardUX.403

      By interfering with CardUX’s efforts, CompoSecure harmed CardUX. The amount

of CardUX’s damages is addressed when this decision addresses the proper remedy.

C.    Unclean Hands

      CompoSecure initially raised a host of affirmative defenses. In post-trial briefing,

those defenses boiled down to a claim that Kleinschmidt breached his duty of loyalty when

negotiating the Sales Agreement, resulting in CardUX having unclean hands. Based on the

trial record, Kleinschmidt did not breach his duty of loyalty (assuming he had one under

these circumstances), and unclean hands does not provide a defense to CardUX’s claims.

      The equitable doctrine of unclean hands

      is not strictly a defense to which a litigant is legally entitled. Rather, it is a
      rule of public policy to protect the public and the court against misuse by
      persons who, because of their conduct, have forfeited the right to have their
      claims considered. The question raised by a plea of unclean hands is whether
      the plaintiff's conduct is so offensive to the integrity of the court that his
      claims should be denied, regardless of their merit.404

“The Court of Chancery has broad discretion in determining whether to apply the doctrine

of unclean hands.”405



      403
            JX 426 at 2.
      404
         Gallagher v. Holcomb & Salter, 1991 WL 158969, at *4 (Del. Ch. Aug. 16,
1991) (Allen, C.) (internal citations omitted), aff’d sub nom. New Castle Ins., Ltd. v.
Gallagher, 692 A.2d 414 (Del. 1997).
      405
          SmithKline Beecham Pharm. Co. v. Merck & Co., Inc., 766 A.2d 442, 448 (Del.
2000) (citation omitted).

                                            100
       “While extensive, the discretion of the Court is by no means absolute. Doctrinally

there are a number of limitations on the application of the maxim.” 406 “The greatest

limitation on the doctrine is the widely accepted exception that since it is ultimately based

on public policy, countervailing public policy which points in the direction of reaching the

case on the merits can preclude its operation.”407 In this case, the countervailing public

policy stems from the importance Delaware affords to negotiated contracts. “When parties

have ordered their affairs voluntarily through a binding contract, Delaware law is strongly

inclined to respect their agreement, and will only interfere upon a strong showing that

dishonoring the contract is required to vindicate a public policy interest even stronger than

freedom of contract.”408 Requiring parties to live with “the language of the contracts they

negotiate holds even greater force when, as here, the parties are sophisticated entities that

bargained at arm’s length.”409

       In the only remaining manifestation of its unclean hands defense, CompoSecure

argues that Kleinschmidt acted disloyally. This argument faces an initial hurdle because,

as CompoSecure recognizes, the LLC Agreement eliminates all fiduciary duties.410



       406
             Nakahara v. NS 1991 Am. Tr., 718 A.2d 518, 523 (Del. Ch. 1998).
       407
             Id.
       408
          Libeau v. Fox, 880 A.2d 1049, 1056 (Del. Ch. 2005) (Strine, V.C.), aff’d in part,
rev’d in part, 892 A.2d 1068 (Del. 2006).
       409
          Progressive Int’l Corp. v. E.I. Du Pont de Nemours & Co., 2002 WL 1558382,
at *7 (Del. Ch. July 9, 2002) (Strine, V.C.).
       410
          See LLCA § 5.1 (“[I]n accordance with applicable law, any and all fiduciary
duties of the Members and members of the Board (including fiduciary duties) to the
                                            101
CompoSecure therefore attempts to derive the existence of a contractual duty of loyalty by

equating “good faith” as manifested in the implied covenant of good faith and fair dealing

with “good faith” as a subsidiary element of the duty of loyalty. 411 In my view, those

concepts are distinct and cannot be equated.412 But this decision need not re-plow that

ground, because, assuming for the sake of argument that Kleinschmidt did owe a duty of

loyalty, he did not breach it when negotiating the Sales Agreement.413

       According to CompoSecure, Kleinschmidt breached his duty of loyalty by seeking

an agreement that was contrary to CompoSecure’s interests:

       Kleinschmidt knew the primary goal shared by CompoSecure’s management
       and LLR (the majority owner that named him to the Board) was to reduce


Company or to another Member or member of the Board or to another person that is a party
to or is otherwise bound by this Agreement shall be eliminated to the maximum extent
permitted by law.”).
       411
             See Dkt. 146 at 60-61.
       412
          See, e.g., ASB Allegiance, 50 A.3d at 440-45 (discussing concept of “good faith”
as used in the implied covenant and as distinct from the duty of loyalty); Lonergan v. EPE
Holdings, LLC, 5 A.3d 1008, 1017-19 (Del. Ch. 2010) (same). In making its argument,
CompoSecure relies heavily on Dieckman v. Regency GP LP, 155 A.3d 358 (Del. 2017). I
read that decision as applying the implied covenant of good faith and fair dealing in its
contractual sense and holding that intentional misrepresentations violated the implied
covenant. That holding was consistent with prior Delaware authority interpreting the
implied covenant. See ASB Allegiance, 50 A.3d at 442-44 (collecting precedents supporting
proposition that fraud violates the implied covenant). I do not believe that Dieckman
supports using the implied covenant as a fiduciary duty equivalent.
       413
           CompoSecure contends that “[g]iven Kleinschmidt’s clear conflict and exaltation
of his personal interest in CardUX, his duties should be scrutinized under the entire fairness
standard.” Dkt. 146 at 64. This argument further demonstrates how CompoSecure equates
a contractual concept (the implied covenant of good faith and fair dealing) with fiduciary
duties (the duty of loyalty) and then introduces them under the heading of an affirmative
defense (unclean hands).

                                             102
       the Company’s dependence on Chase to achieve a higher valuation. Yet he
       now claims to have negotiated a contract with CompoSecure that entitles his
       company to commissions for sales it had nothing to do with, including this
       particular sale to Chase, which worsened the very problem on which the
       Board was focused and for which it agreed to hire CardUX in the first place.

This paragraph rehashes CompoSecure’s arguments about the extrinsic evidence as

grounds for applying the doctrine of unclean hands.

       As this decision discussed previously, the record does not support the assertion that

“the primary goal” driving the Sales Agreement was to reduce customer concentration. It

might have been one of the goals, but it was not the exclusive goal. CardUX’s efforts to

increase CompoSecure’s overall sales by acting in compliance with the Sales Agreement

do not warrant the application of unclean hands.

       Similarly, the Sales Agreement entitles CardUX to commissions without the need

to show a connection between CardUX’s efforts and a particular sale. The parties reached

that result after extensive negotiations. The Amazon Sale falls into one of the areas where

the bright-line arrangement fits poorly with what an efforts-based regime would produce,

but that is the bargain the parties struck. Seeking compensation in compliance with a

bargained-for arrangement does not equate to unclean hands.

       Most stridently, CompoSecure contends that the Amazon Sale represents “an

enormous windfall commission on a sale CardUX had nothing to do with,” resulting in a

contract that is “egregiously one-sided.”414 The Amazon Sale is indeed an example of the




       414
             Dkt. 146 at 63.

                                            103
type of windfall compensation that could result from the bright-line commission structure,

but that does not mean that the Sales Agreement is “egregiously one-sided.” Because the

list of Approved Prospects is limited, there easily could be sales where CardUX’s efforts

contribute to a massive order for a co-brand partner, but the purchaser is not an Approved

Prospect. Under those circumstances, CardUX will not get a commission, and

CompoSecure will receive a windfall benefit.

       It is true that Kleinschmidt bargained in his own interest when he negotiated the

Sales Agreement, but this does not mean he has unclean hands. Kleinschmidt openly

negotiated opposite Logan and Hollin. They and the rest of CompoSecure’s leadership

team knew about Kleinschmidt’s interests and his roles as a manager and member of

CompoSecure. Bargaining at arms’ length, Kleinschmidt repeatedly struck any efforts

clauses from the Sales Agreement and clearly communicated that CardUX would not

accept any efforts requirement. Although CompoSecure’s witnesses testified during this

litigation that they did not understand that fact, I cannot credit that testimony. Kleinschmidt

and Frantz were too clear and consistent for there to have been any doubt. Relatedly,

CompoSecure has not identified any misrepresentations that Kleinschmidt made. Although

CompoSecure has pulled statements out of context, their meaning in context is clear.

       This is not a case where unclean hands should be used to implement a form of quasi-

reformation. The parties bargained for terms. Those terms should be enforced.




                                             104
D.     The Remedy

       In New Jersey, “judicial remedies upon breach of contract fall into three general

categories: restitution, compensatory damages and performance.”415 “Compensatory

damages put the innocent party into the position he or she would have achieved had the

contract been completed.”416 “Most often, courts award compensatory damages in a breach

of contract action.”417 While the non-breaching party must show that “the loss must be a

reasonably certain consequence of the breach[,] . . . the exact amount of the loss need not

be certain.”418

       CardUX is entitled to compensatory damages for past-due commissions for the

Amazon Sale. During CompoSecure’s 2016 fiscal year, Chase had purchased cards for

Amazon worth $21,464,844, resulting in a total commission of $3,042,641 for CardUX.419

As of March 9, 2017, Chase had purchased cards for Amazon worth another $16,938,395,

resulting in an additional commission of $2,401,018 for CardUX.420 CompoSecure

estimated that Chase would make additional purchases of cards for Amazon during 2017




       415
         Totaro, Duffy, Cannova & Co., L.L.C. v. Lane, Middleton & Co., L.L.C., 921
A.2d 1100, 1107 (N.J. 2007) (internal quotation marks omitted) (quoting Donovan v.
Bachstadt, 453 A.2d 160, 165 (N.J. 1982)).
       416
             Id.
       417
             Id. (citations omitted).
       418
             Donovan, 453 A.2d at 166 (citations omitted).
       419
             JX 400 at 1.
       420
             Id. at 2.

                                             105
of $58,438,000, resulting in an estimated commission of $8,283,587 for CardUX. Now that

2017 has concluded, the parties shall attempt to agree on the precise amount of past-due

commissions. If the parties cannot agree within forty-five days, then further proceedings

on this issue will be necessary.

       CardUX failed to establish a recoverable amount of compensatory damages for

proving that CompoSecure (i) failed to use commercially reasonable efforts to support

CardUX’s sales efforts under Section 4.1 and (ii) intentionally sought to reduce CardUX’s

commissions in violation of Section 6.2(e). CardUX is entitled to nominal damages of

$1.00 for proving each breach.

       CardUX also seeks a mandatory injunction compelling CompoSecure to comply

with its obligation to support CardUX’s sales efforts and an order of specific performance

compelling CompoSecure to pay commissions when due. Both requests seek a form of

specific performance, which is simply a mandatory injunction directing a party to comply

with a contractual obligation. Because that is what CardUX seeks in this case, this decision

only discusses the concept of specific performance and does not separately address the

concept of a mandatory injunction.

       Under New Jersey law, “[s]pecific performance . . . is appropriate when relief at

law, money damages, provides inadequate compensation for the breach of an

agreement.”421 “The appropriateness of the specific performance remedy also depends



       421
           In re Envir. Declaratory Judgment Actions, 693 A.2d 844, 851 (N.J. 1997)
(citations omitted).

                                            106
upon the clarity of the terms of the contract. The oft-stated rule is that the terms of the

contract must be definite and certain so that the court may decree with some precision what

the defendant must do.”422 “Specific performance is particularly appropriate when . . . the

claim involves a continuing right to future benefits that cannot be satisfied by a one-time

monetary payment.”423

       The parties agreed that specific performance would be an available remedy for

breach. Section 16.12 of the Sales Agreement states:

       Equitable Remedies. Each Party acknowledges and agrees that (a) a breach
       or threatened breach by it of any of its obligations under this Agreement may
       give rise to irreparable harm to the other Party for which monetary damages
       may not be an adequate remedy and (b) in the event of a breach by such Party
       of any such obligations, the other Party shall, in addition to any and all other
       rights and remedies that may be available to it at law, at equity or otherwise
       in respect of such breach, be entitled to seek equitable relief, including . . .
       specific performance.424




       422
           Barry M. Dechtman, Inc. v. Sidpaul Corp., 446 A.2d 518, 521 (N.J. 1982)
(citations omitted); see also Restatement (Second) of Contracts § 362 (1981) (“Specific
performance or an injunction will not be granted unless the terms of the contract are
sufficiently certain to provide a basis for an appropriate order.”); 25 Richard A. Lord,
Williston on Contracts § 67:4 (4th ed. 2002) (“By the great weight of authority, equity will
not grant specific performance unless the terms of the contract are sufficiently certain for
the court to decree with some exactness what the defendant must do.”).
       423
             Envir. Declaratory Judgment, 693 A.2d at 852 (citations omitted).
       424
             SA § 16.12.

                                             107
Although not controlling for purposes of this court’s exercise of remedial discretion,

Section 16.12 provides a sufficient basis for a decree of specific performance.425

       On the facts of this case, an award of specific performance is not warranted. A

decree that would require CompoSecure to pay commissions when due is not necessary. If

CompoSecure fails to pay a commission, then CardUX can sue for breach and recover

money damages, as it has here.

       A decree enforcing the support obligation is also not necessary. As a matter of

contract, CompoSecure already has that obligation. This court’s decree would not provide

more specific instructions or otherwise implement that obligation. It simply would add the

imprimatur of an order and the threat of contempt sanctions for breach. Such an order

would give CardUX additional leverage over CompoSecure in the future, but it would not

help clarify CompoSecure’s obligations or direct CompoSecure to take specific action.

       In the pre-trial order and again at post-trial argument, CardUX requested injunctive

relief extending the term of the Sales Agreement “for a period equal to the time during

which CompoSecure failed to comply with its obligations to support and cooperate with

CardUX’[s] sales efforts.”426 That relief is potentially apt, but CardUX did not mention it

in either of its post-trial briefs. This aspect of CardUX’s request for relief was waived.




       425
          Martin Marietta Materials, Inc. v. Vulcan Materials, Co., 68 A.3d 1208, 1226
(Del. 2012) (explaining that contractual stipulations as to the availability of equitable
remedies “alone suffice” to support the granting of relief).
       426
             PTO ¶ 105(h).

                                            108
      Finally, there is no need for a declaratory judgment regarding the interpretation of

the Sales Agreement. This decision has held that CompoSecure’s actions breached the

Sales Agreement. A declaratory judgment to the same effect would be redundant.

E.    Attorneys’ Fees and Costs

      CardUX seeks to recover its attorneys’ fees and costs. CardUX relies initially on

Section 12.2 of the Sales Agreement, which provides for indemnification. If contractual

fee shifting is not available, then CardUX seeks fees in equity, contending that

CompoSecure litigated in bad faith.

      Section 12.2 of the Agreement states:

      CompoSecure shall indemnify, hold harmless, and defend Sales
      Representative and its officers, managers, employees, agents, Affiliates,
      successors and permitted assigns (collectively, “Sales Representative
      Indemnified Parties”) against any and all losses, damages, liabilities,
      deficiencies, claims, actions, judgments, settlements, interest, awards,
      penalties, fines, costs, or expenses of whatever kind, including reasonable
      attorney fees, fees and the costs of enforcing any right to indemnification
      under this Agreement, awarded against any Sales Representative
      Indemnified Party in a final non-appealable judgment, relating to, arising out
      of or resulting from the following (including any third-party claim):

            (a) material breach or non-fulfillment of any material representation,
      warranty or covenant under of [sic] this Agreement by CompoSecure or
      CompoSecure’s Personnel, including Section 11.2;

             (b) any grossly negligent or more culpable act or omission of
      CompoSecure or its Personnel in connection with the performance of its
      obligations under this Agreement; or




                                           109
             (c) any bodily injury, death of any Person or damage to real or tangible
       personal property caused by grossly negligent or more culpable acts or
       omissions of CompoSecure or its Personnel.427

Subparts (a) and (b) in this provision encompass this case. At trial, Logan agreed.428

       CardUX is entitled to indemnification under Section 12.2(a) because CardUX

proved in this case that CompoSecure breached a material representation. In Section 11,

CompoSecure represented that “the execution of this Agreement has been duly authorized

by all necessary company action”429 and that the Sales Agreement constituted a “legal,

valid and binding obligation.”430 CompoSecure then took the contrary position that the

Sales Agreement was not duly authorized and was not a legal, valid, and binding obligation.

CardUX is entitled to indemnification for the losses it suffered as a result of

CompoSecure’s breach of a material representation.

       CardUX also is entitled to indemnification under Section 12.2(a) because

CompoSecure failed to perform a material covenant. That covenant took the form of

CompoSecure’s obligations in Section 4.1 to use commercially reasonable efforts to

support CardUX’s sales and marketing efforts. Relatedly, CardUX is entitled to

indemnification under Section 12.2(b) because this decision has held that Logan

intentionally obstructed CardUX’s sales efforts for the purpose of depriving CardUX of



       427
             SA § 12.2.
       428
             Logan Tr. 320.
       429
             SA § 11.1(c).
       430
             Id. § 11.1(d).

                                            110
commissions. CardUX only received an award of nominal damages for its breaches of

Sections 4.1 and 6.2(e), making indemnification for its fees and costs all the more

appropriate. Otherwise, CompoSecure would not face a meaningful consequence for its

intentional breach of the Sales Agreement.

       The parties might have raised interesting arguments about the scope of the

indemnification provision, such as whether the provision is limited to third-party claims

and whether a request for indemnification is currently ripe. No one has raised these issues,

and this decision has not considered them. It does not intimate any view, one way or

another, on the merits of those issues or others that might have been raised.

       The parties shall confer on the amount of attorneys’ fees and costs. If the parties

cannot agree within forty-five days of this decision, then CardUX’s counsel shall submit a

Rule 88 affidavit. Unless CompoSecure’s counsel produces their own billing records in full

in support of an argument that CardUX’s bills are too high, I shall consider the amount

sought by CardUX to be reasonable.431 Because CardUX is entitled to attorneys’ fees and

costs as a matter of contract, this court does not reach the bad faith exception to the

American Rule.




       431
         See Ensing v. Ensing, 2017 WL 880884, at *12 n.136 (Del. Ch. Mar. 6, 2017);
Horne v. OptimisCorp., 2017 WL 838814, at *5 n.54 (Del. Ch. Mar. 3, 2017); Auriga
Capital Corp. v. Gatz Props., LLC, 40 A.3d 839, 882 (Del. Ch. 2012) (Strine, C.).

                                             111
F.     Interest

       CardUX is entitled to pre- and post-judgment interest on the amounts due. Under

New Jersey law, “the award of prejudgment interest on contract and equitable claims is

based on equitable principles.”432 “Similarly, the rate at which prejudgment interest is

calculated is within the discretion of the court.”433

       The basic consideration is that the defendant has had the use, and the plaintiff
       has not, of the amount in question; and the interest factor simply covers the
       value of the sum awarded for the prejudgment period during which the
       defendant had the benefit of monies to which the plaintiff is found to have
       been earlier entitled.434

The Sales Agreement does not provide for an interest rate. Lacking any reason to apply a

different rate, pre- and post-judgment interest will accrue at Delaware’s statutory rate,435

fluctuating with the underlying Federal Discount Rate and compounded quarterly, until the

date of payment.436




       432
             Cty. of Essex v. First Union Nat’l Bank, 891 A.2d 600, 608 (N.J. 2006) (citation
omitted).
       433
             Litton Indus., Inc. v. IMO Indus., Inc., 982 A.2d 420, 430 (N.J. 2009) (citation
omitted).
       434
          First Union, 891 A.2d at 608 (quoting Rova Farms Resort, Inc. v. Inv’rs Ins. Co.
of Am., 323 A.2d 495, 506 (N.J. 1974)).
       435
             See 6 Del. C. § 2301(a).
       436
           Levey v. Brownstone Asset Mgmt., LP, 2014 WL 4290192, at *1 (Del. Ch. Aug.
29, 2014) (explaining rationale for fluctuating rate); Taylor v. Am. Specialty Retailing Gp.,
Inc., 2003 WL 21753752, at *13 (Del. Ch. July 25, 2003) (using quarterly compounding
interval for legal rate “due to the fact that the legal rate of interest most nearly resembles a
return on a bond, which typically compounds quarterly”).

                                              112
                                 III.     CONCLUSION

       CardUX has prevailed on both of its claims for breach of the Sales Agreement. The

parties shall confer regarding the specific amount of commissions that are due. The parties

also shall confer regarding CardUX’s attorneys’ fees and expenses. Assuming the parties

can agree on these issues, then they shall submit a final judgment that is agreed upon as to

form. If there are issues that the court needs to address before a final judgment can be

entered, then the parties shall submit a joint letter within sixty days that identifies those

issues and proposes a path forward that will bring this case to a conclusion at the trial level.




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