   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE


 INTEAM ASSOCIATES, LLC, a     )
 Delaware limited liability company, as
                               )
 successor-in-interest   to    )
                              SL-TECH
 TECHNOLOGIES, INC., a Delaware)
 corporation,                  )
                               )
      Plaintiff,               )
                               )
      v.                       )                     C.A. No. 11523-VCMR
                               )
 HEARTLAND PAYMENT SYSTEMS, )
 LLC,                          )
                               )
      Defendant.               )
 HEARTLAND PAYMENT SYSTEMS, )
 LLC,                          )
                               )
      Counterclaim Plaintiff,  )
                               )
      v.                       )
                               )
 LAWRENCE GOODMAN, III and )
 INTEAM ASSOCIATES, LLC,       )
                               )
      Counterclaim Defendants. )

          ORDER CRAFTING REMEDY FOLLOWING REMAND

      WHEREAS, on September 30, 2016, this Court issued a post-trial

memorandum opinion in the instant case;

      WHEREAS, on August 17, 2017, the Delaware Supreme Court issued an

opinion affirming in part and reversing in part this Court’s opinion;
      WHEREAS, the Supreme Court “remand[ed] the case to the Court of

Chancery to exercise its broad discretion to craft a remedy” consistent with its

opinion;

      NOW, THEREFORE, THE COURT HEREBY FINDS AND ORDERS AS

FOLLOWS:

      1.     I have reviewed the parties’ briefs, supporting submissions, and the

applicable law.

      2.     I detail only the facts necessary to craft a remedy pursuant to the

Supreme Court’s instruction. 1 For a full recounting of the events leading up to this

case, see Heartland Payment Systems, LLC v. inTEAM Associates, LLC, 171 A.3d

544 (Del. 2017).

      3.     Heartland Payment Systems, Inc. (“Heartland”) is a credit card

payment processor for industries including K-12 schools. Tr. 611-12 (Lawler).

Additionally, Heartland produces computer software to manage school meal

programs for the K-12 foodservice industry. Id. In September 2011, Heartland




1
      Citations to testimony presented at trial are in the form “Tr. # (X)” with “X”
      representing the name of the speaker. Citations to the transcript of the oral argument
      on remand are in the form “Oral Arg. Tr. #.” After being identified initially,
      individuals are referenced herein by their surnames without regard to formal titles
      such as “Dr.” No disrespect is intended. Joint Trial Exhibits are cited as “JX #.”
      Facts drawn from the parties’ Joint Pre-Trial Stipulation and Order are cited as
      “PTO ¶ #.” Unless otherwise indicated, citations to the parties’ briefs are to remand
      briefs.

                                          2
entered into a purchase agreement (the “Asset Purchase Agreement”) to acquire the

assets of School Link Technologies, Inc. (“SL-Tech”), a producer of computer

software for food service operations management. JX 25. The Asset Purchase

Agreement excluded one division of SL-Tech from the acquisition, a consulting

business spun off to create inTEAM Associates, LLC (“inTEAM”). Id. at Ex. A, at

A-4; Id. at Ex. M. Lawrence Goodman, III, SL-Tech’s former CEO, became CEO

of inTEAM. PTO ¶ III.A.3.

      4.     The parties executed two additional agreements concurrent with the

Asset Purchase Agreement.        A co-marketing agreement (the “Co-Marketing

Agreement”) granted Heartland and inTEAM the right to market one another’s

products. JX 23 § 2.1. Under a consulting agreement (the “Consulting Agreement”),

Goodman served as a strategic advisor to Heartland in exchange for a monthly

salary. JX 22 ¶¶ 1, 3. The Asset Purchase Agreement, Co-Marketing Agreement,

and Consulting Agreement each contain non-compete provisions.             The Asset

Purchase Agreement states that “[f]or a period of five (5) years from and after the

Closing Date, neither [SL-Tech] nor [Goodman] will engage directly or indirectly .

. . in providing any Competitive Services or Products or any business that School-

Link conducts as of the Closing Date in any of the Restricted Territory.” JX 25 §

5(n). The Co-Marketing Agreement states that “inTEAM shall not engage, directly

or indirectly, on its own behalf or as a principal or representative of any person, in


                                        3
providing any services or products competitive with the HPS Business.” JX 23 §

9.1.1(B). It also states that “[Heartland] shall not engage, directly or indirectly . . .

in providing any services or products competitive with the inTEAM Business . . . .”

Id. § 9.1.1. The Consulting Agreement states:

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

JX 22 ¶ 11(a).

      5.     Despite the multitude of non-compete provisions, each of the parties

began taking competitive actions. “inTEAM developed a new software program

module . . . with overlapping capabilities with” an SL-Tech software program

acquired by Heartland. Heartland, 171 A.3d at 546. “Goodman tried to solicit one

of Heartland’s customers.       Heartland paired with one of inTEAM’s biggest

competitors to submit a bid to provide software to the Texas Department of

Agriculture.” Id.




                                          4
      6.    The parties subsequently brought claims and counterclaims in the Court

of Chancery, with inTEAM seeking to enjoin Heartland’s actions and Heartland

seeking to enjoin the behavior of inTEAM and Goodman. inTEAM, 2016 WL

5660282, at *1. Following a four-day trial, this Court held that Heartland breached

its non-compete obligations under the Co-Marketing Agreement, id. at *17, but that

neither inTEAM nor Goodman violated any non-compete provisions. Id. at *14,

*23. This Court also held that Goodman violated certain non-solicitation obligations

contained in the Consulting Agreement. Id. at *25. This Court enjoined Heartland

from engaging in competitive activities from September 30, 2016 to March 21, 2018,

id. at *27, and ordered Goodman to disgorge his consulting fees from “July, August,

and September 2014, totaling $50,003.01” due to his breach of the non-solicitation

obligations contained in the Consulting Agreement. Id. at *28.

      7.    On appeal, the Supreme Court affirmed that “Heartland breached its

contractual obligations by collaborating with an inTEAM competitor, and Goodman

breached by soliciting a customer of Heartland.” Heartland, 171 A.3d at 547.

Further, the Supreme Court noted that the Court of Chancery “did not abuse its

discretion . . . [in the] assessed damages against Goodman.” Id. The Supreme Court,

however, “reverse[d] the Court of Chancery’s finding that Goodman and inTEAM

did not breach their non-compete obligations under the various agreements,” holding

instead that Goodman and inTEAM each breached their non-compete obligations in


                                       5
2012. Id. The Supreme Court “remand[ed] the case to the Court of Chancery to

exercise its broad discretion to craft a remedy sufficient to compensate Heartland for

Goodman’s and inTEAM’s breaches of the transaction documents.” Id. The

Supreme Court also noted that the Court of Chancery may “consider certain

affirmative defenses . . . [that were] properly raised and briefed . . . at trial [which]

the Court of Chancery did not reach . . . because it found no violation” of the non-

compete obligations by inTEAM and Goodman. Id. at 572.

      8.     On remand, the parties primarily seek injunctive relief to enforce the

contractual non-compete provisions against each other. Heartland seeks to (i) vacate

the standing injunction against it and (ii) enjoin inTEAM and Goodman from selling

competing products. Def.’s Opening Br. 9. inTEAM asks the Court to let the

existing injunction against Heartland stand. Pl. & Countercl. Def.’s Answering Br.

39. Both parties raise the affirmative defense of unclean hands. Def.’s Opening Br.

12; Pl. & Countercl. Def.’s Answering Br. 23. I agree and conclude that the doctrine

of unclean hands bars either party from receiving the equitable relief of an

injunction. See, e.g., Alpha Builders, Inc. v. Sullivan, 2004 WL 2694917, at *2 (Del.

Ch. Nov. 5, 2004) (“A request for injunctive relief clearly constitutes equitable relief

over which this Court has jurisdiction.”).

      9.     “[H]e who comes into equity must come with clean hands.” In re Silver

Leaf, L.L.C., 2005 WL 2045641, at *11 (Del. Ch. Aug. 18, 2005) (alteration in


                                          6
original) (quoting Bodley v. Jones, 59 A.2d 463, 469 (Del. 1947)). “When one [who]

files a bill of complaint seeking to set the judicial machinery in operation and to

obtain some remedy has violated conscience or good faith or other equitable

principles in his conduct, then the doors of the court of equity should be shut against

him.” Id. (alteration in original) (quoting Bodley, 59 A.2d at 469). “[T]he unclean

hands doctrine is aimed at providing courts of equity with a shield from the

potentially entangling misdeeds of the litigants in any given case.” Id. at *12

(alteration in original) (quoting Merck & Co. v. SmithKline Beecham Pharms. Co.,

1999 WL 669354, at *45 (Del. Ch. Aug. 5, 1999)).

      10.    The Court “has broad discretion in determining whether to apply the

doctrine of unclean hands.” SmithKline Beecham Pharm. Co. v. Merck & Co., 766

A.2d 442, 448 (Del. 2000). The Court is “not bound by formula or restrained by any

limitation that tends to trammel the free and just exercise of discretion.” Nakahara

v. NS 1991 Am. Tr., 718 A.2d 518, 522-23 (Del. Ch. 1998) (quoting Keystone Driller

Co. v. Gen. Excavator Co., 290 U.S. 240, 245-46 (1933)). “But the Court’s

discretion is not completely unlimited.” McKenna v. Singer, 2017 WL 3500241, at

*14 (Del. Ch. July 31, 2017). For the Court to apply the doctrine of unclean hands,

the inequitable conduct of the party against whom unclean hands is being applied

“must have an ‘immediate and necessary’ relation to the claims under which relief




                                         7
is sought.” Nakahara, 718 A.2d at 523 (citing Kousi v. Sugahara, 1991 WL 248408,

at *2 (Del. Ch. Nov. 21, 1991)).

      11.    Goodman and inTEAM began breaching their respective non-compete

obligation in 2012. Heartland, 171 A.3d at 547. Heartland began breaching its non-

compete obligations in 2014. Id. at 571. Moreover, the parties each took steps to

conceal their respective violations from each other. For instance, in an email from

November 11, 2012, an inTEAM nutritional consultant stated that “we can’t be

straight up . . . because that would be invading [Heartland’s] territory!” Id. at 568

n.90. inTEAM’s former Chief Operations Officer also wrote an email to the

company’s vice president of operations stating “you know [we’re] basically

developing a competing product with [Heartland] now,” id. at 554, a view that

inTEAM never shared with Heartland. Similarly, “Heartland teamed with Colyar[,

a direct competitor to inTEAM,] to provide the same functionality that the Asset

Purchase Agreement and the Co-Marketing Agreement reserve[d] for inTEAM” in

a bidding process in Texas, inTEAM, 2016 WL 5660282, at *18, but only revealed

its actions to inTEAM after losing the bidding process eighteen months later.

Heartland, 171 A.3d at 555.

      12.    Heartland and inTEAM seek equitable relief from the Court in the form

of injunctions enforcing non-compete obligations. And “[b]oth parties argue that

the other’s claims should be barred by the doctrine of unclean hands.” In re Silver


                                        8
Leaf, 2005 WL 2045641, at *12. Both parties, Heartland and inTEAM, violated

their own respective non-compete obligations and went to great lengths to hide the

competitive actions from the other side. 2 The inequitable conduct of Heartland and

inTEAM has an “‘immediate and necessary’ relation to the claims under which relief

is sought.” Nakahara, 718 A.2d at 523 (citing Kousi, 1991 WL 248408, at *2). The

Court will not enforce non-compete obligations where the party seeking such

injunctive relief surreptitiously violated its own non-compete obligations and instead

will avoid the “entangling misdeeds of the litigants.” In re Silver Leaf, 2005 WL

2045641, at *12 (quoting Merck, 1999 WL 669354, at *45). Thus, I vacate the

injunction against Heartland, decline to issue a new injunction against Heartland,

and decline to enjoin inTEAM or Goodman from their respective behaviors.

      13.    In addition to injunctive relief, Heartland also seeks monetary damages

against Goodman for breach of the Asset Purchase Agreement and Consulting

Agreement. The Court of Chancery found, and the Supreme Court affirmed, that

Goodman should pay Heartland $50,003.01 as compensation for his breach of

certain non-solicitation obligations in the Consulting Agreement. Heartland, 171

A.3d at 571. Now, Heartland asks that the Court order Goodman to pay back “each



2
      To the extent my prior opinion stated that inTEAM did not have unclean hands,
      inTEAM, 2016 WL 5660282, at *23, that ruling relied heavily on my finding that
      inTEAM did not breach its non-compete obligations. The Supreme Court reversed
      that finding, and so I must reexamine the argument, as I have done here.

                                        9
and every benefit Goodman received from inTEAM while it was operating as a

competitive business . . . [including] Goodman’s wages[,] . . . Goodman’s share of

rental income received from leasing commercial property to inTEAM[,] . . . and the

tax benefits enjoyed by Goodman from running inTEAM as a tax shelter” for

Goodman’s breach of the non-compete provision contained in the Asset Purchase

Agreement. Def.’s Opening Br. 14-15. Heartland also seeks an additional $400,000

for Goodman’s breach of the non-compete provision contained in the Consulting

Agreement. Id. at 13-14.

      14.    The Asset Purchase Agreement provides that in the event of a breach

by a “Seller or Seller Shareholder[],” the “Seller or Seller Shareholder[] . . . [must]

account for and pay over to the Non-Breaching Party all payments, profits, monies,

accruals, increments, or other benefits derived or received by Seller or any Seller

Shareholder[] . . . as a result of any transaction constituting a breach of any of the

restrictive covenants.” JX 25, § 5(q)(ii). Even if the Court were to conclude that

Goodman qualifies as a “Seller Shareholder” for the purpose of the Asset Purchase

Agreement, Heartland has not established what damages it is owed as a result of

Goodman’s breach of the Asset Purchase Agreement’s non-compete provisions.

Heartland readily admits that “it’s not possible to apportion damages on a

transaction-by-transaction basis.” Oral Arg. Tr. 16. Instead, Heartland argues that

“Goodman’s pervasive involvement in the business” means that Goodman should


                                        10
pay back “all benefits that . . . Goodman enjoyed, including the wages he was paid

by inTEAM, the rental income he received from leasing commercial property to

inTEAM, and the tax benefits that he received as a result of inTEAM’s operating

losses.” Id. at 16-17. But the Asset Purchase Agreement explicitly requires damages

to be limited to those that “result [from] any transaction constituting a breach of any

of the restrictive covenants.” JX 25, § 5(q)(ii). Heartland fails to make any attempt

to identify which of these alleged damages, if any, flow from Goodman’s breach of

the Asset Purchase Agreement; thus, Heartland has not established that it is

contractually entitled to damages under the Asset Purchase Agreement.

      15.    Regarding money damages under the Consulting Agreement, “in the

event of breach [of the Consulting Agreement], Heartland has ‘no obligation to pay

[Goodman] any compensation.’”         inTEAM, 2016 WL 5660282, at *28 n.322

(quoting JX 22 ¶ 3). On this basis, the Court of Chancery held, and the Supreme

Court affirmed, that Goodman must return consulting fees earned from his initial

breach of the Consulting Agreement through the end of the Consulting Agreement.

Heartland, 171 A.3d at 571-72. In computing damages, the Court of Chancery used

July 2014 as the initial date of breach, when Goodman began violating his non-

solicitation obligations, and September 2014 as the final date, when the Consulting

Agreement ended. Id. at 571. But the Supreme Court determined that Goodman

began breaching his non-compete obligations under the Consulting Agreement in


                                        11
2012. Id. at 572. Heartland offers July 2012 as the start date of that breach. Oral

Arg. Tr. 54-55. The Consulting Agreement specified that Goodman was to be paid

$16,666.67 per month. JX 22 ¶ 3. Thus, unless an affirmative defense applies,

Goodman will owe Heartland for twenty-seven months—July 2012 through

September 2014—of consulting fees, equal to $450,000.09. Because I already have

ordered Goodman to pay $50,003.01, this would result in an additional award of

$399,997.08 in money damages from Goodman to Heartland.

      16.   The Supreme Court instructed the Court of Chancery to consider

Goodman’s affirmative defenses to his breach of his non-compete obligations.

Heartland, 171 A.3d at 572. Goodman asserts the affirmative defenses of unclean

hands, laches, waiver, acquiescence, and equitable estoppel. Pl. & Countercl. Def.’s

Answering Br. 11-26.3 Money damages are legal in nature, and “the ‘unclean hands’

doctrine bars equitable, but not legal, relief.” Lehman Bros. Hldgs. v. Spanish

Broad. Sys., Inc., 2014 WL 718430, at *7 n.47 (Del. Ch. Feb. 25, 2014), aff’d, 105

A.3d 989 (Del. 2014); see also In re Estate of Tinley, 2007 WL 2304831, at *1 (Del.

Ch. July 19, 2007) (explaining that “a litigant seeking equitable relief who appears


3
      At trial, Goodman and inTEAM also argued that Heartland failed to mitigate
      damages. inTEAM, 2016 WL 5660282, at *13. But Goodman and inTEAM did not
      raise this defense in the Answering Brief on remand. Pl. & Countercl. Def.’s
      Answering Br. 11-26. “Issues not briefed are deemed waived.” Emerald P’rs v.
      Berlin, 726 A.2d 1215, 1224 (Del. 1999) (citing Loudon v. Archer-Daniels-Midland
      Co., 700 A.2d 135, 140 n.3 (Del. 1997); Murphy v. State, 632 A.2d 1150, 1152 (Del.
      1993)).

                                        12
with unclean hands will find that relief barred to her,” but that the doctrine will not

bar legal relief.) I decline to apply the equitable defense of unclean hands to bar the

legal remedy of money damages expressly mandated by the contractual terms of the

Consulting Agreement.

      17.    In order for the affirmative defenses of laches, waiver, acquiescence, or

equitable estoppel to bar Heartland’s claims, Goodman must show that Heartland

had knowledge of the underlying breach. See Reid v. Spazio, 970 A.2d 176, 182-83

(Del. 2009) (quoting Homestore, Inc. v. Tafeen, 888 A.2d 204, 210 (Del. 2005))

(“[L]aches generally requires the establishment of three things: first, knowledge by

the claimant; second, unreasonable delay in bringing the claim, and third, resulting

prejudice to the defendant.”); Roam-Tel P’rs v. AT&T Mobility Wireless Operations

Hldgs. Inc., 2010 WL 5276991, at *9 (Del. Ch. Dec. 17, 2010) (quoting Realty

Growth Inv’rs v. Council of Unit Owners, 453 A.2d 450, 456 (Del. 1982); (“Waiver

is the voluntary and intentional relinquishment of a known right.”); Dirienzo v. Steel

P’rs Hldgs. L.P., 2009 WL 4652944, at *7 (Del. Ch. Dec. 8, 2009) (quoting Cantor

Fitzgerald, L.P. v. Cantor, 2000 WL 307370, at *24 (Del. Ch. Mar. 13, 2000).

(Acquiescence requires that a “complainant has full knowledge of his rights and the

material facts.”); Cornerstone Brands, Inc. v. O’Steen, 2006 WL 2788414, at *3,

n.14 (Del. Ch. Sept. 20, 2006) (citing Scott-Douglas Corp. v. Greyhound Corp., 304

A.2d 309, 318 (Del. Super. 1973)) (“In order to prevail on an equitable estoppel


                                        13
theory . . . [the party to be estopped must have] knowledge, actual or constructive,

of the real facts.”). In the post-trial memorandum opinion, this Court determined

that Goodman did not breach his non-compete obligations and that Heartland was

aware of Goodman and inTEAM’s development of its software. inTEAM, 2016 WL

5660282, at *23. The Supreme Court, however, concluded that Goodman’s behavior

constituted breach of his non-compete obligations and that Goodman and inTEAM

took evasive steps to conceal their behavior from Heartland. See Heartland, 171

A.3d at 544, 555, 568 n.90. I read the Supreme Court’s opinion as a reversal of both

the conclusion that Goodman did not breach the non-compete and the finding that

Heartland had knowledge of Goodman’s and inTEAM’s actions.4 Thus, Goodman’s




4
      Heartland points to several documents to support its argument that Goodman and
      inTEAM concealed their competitive actions from Heartland. Oral Arg. Tr. 19-33;
      Def.’s Opening Br. 4-6. In its brief, Heartland specifically identifies the email from
      inTEAM’s Vice President of Operations, Erik Ramp, to Heartland’s Terry Roberts
      dated June 8, 2012, as evidence that Goodman attempted to assure Roberts that
      inTEAM was not trying to develop competitive software. Def.’s Opening Br. 4. In
      the post-trial memorandum opinion, I found that this email, sent eleven days after
      the federal guidelines became effective, demonstrated Heartland’s knowledge of
      Goodman and inTEAM’s actions. inTEAM, 2016 WL 5660282, at *23. Although
      the Supreme Court does not explicitly overrule this point, the only logical
      conclusion is that it agreed with Heartland that Ramp’s email, along with other
      evidence presented by Heartland, reflect concealment rather than disclosure.
      Otherwise, waiver would have been the necessary outcome in the Supreme Court’s
      opinion. Further, the same logic that led to the Supreme Court’s finding that
      Heartland would not enter into a $17 million contract only to immediately allow
      inTEAM to breach, Heartland, 171 A.3d at 564, dictates a finding that Heartland
      would not allow for an immediate waiver of that breach.

                                          14
affirmative defenses of laches, waiver, acquiescence, and equitable estoppel fail

because Heartland lacked knowledge of Goodman’s breaching behavior.

      18.   For the reasons stated above, I vacate the existing injunction against

Heartland, decline to issue new injunctions against Heartland, inTEAM, or

Goodman, and order Goodman to pay $399,997.08 in money damages for violating

his non-compete obligations.

                                           /s/ Tamika Montgomery-Reeves
                                           Vice Chancellor
                                           Dated: March 29, 2018




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