   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE


GREG HANEY, AS SELLERS’                    :
REPRESENTATIVE OF                          :
CARDLAB, INC.,                             :
                                           :
                        Plaintiff,         :
                                           :
            v.                             :     C.A. No. 10851-VCN
                                           :
BLACKHAWK NETWORK                          :
HOLDINGS, INC.,                            :
                                           :
                        Defendant.         :


                         MEMORANDUM OPINION


                      Date Submitted: November 4, 2015
                       Date Decided: February 26, 2016



Arthur L. Dent, Esquire and Jaclyn C. Levy, Esquire of Potter Anderson &
Corroon LLP, Wilmington, Delaware, and Charles L. “Chip” Babcock, Esquire
and Maryellen Shea, Esquire of Jackson Walker, L.L.P., Houston, Texas,
Attorneys for Plaintiff.

Jon E. Abramczyk, Esquire and D. McKinley Measley, Esquire of Morris, Nichols,
Arsht & Tunnell LLP, Wilmington, Delaware, and Everett C. Johnson, Jr., Esquire,
J. Christian Word, Esquire, and Christopher J. Fawal, Esquire of Latham &
Watkins LLP, Washington, D.C., Attorneys for Defendant.




NOBLE, Vice Chancellor
      Plaintiff Greg Haney (“Haney” or “Plaintiff”) in his capacity as

representative of the selling stockholders (“Seller Representative”) of CardLab,

Inc. (“CardLab” or “Sellers”) brings this action against Blackhawk Network

Holdings, Inc. (“Blackhawk”) for fraudulent inducement, breach of contract (three

counts), breach of the implied covenant of good faith and fair dealing, unjust

enrichment, and negligent misrepresentation. Plaintiff seeks reformation of the

merger agreement (or in the alternative, imposition of a constructive trust over

certain funds held in escrow), damages in compensation for certain monetary

losses due to an alleged breach of the merger agreement (and maximum allowable

pre- and post-judgment interest), and a judgment requiring Blackhawk to furnish to

Plaintiff certain information pursuant to the merger agreement.1

                             I.    BACKGROUND

      Blackhawk is a Delaware corporation that provides gift cards and other

prepaid products and financial service products to its customers through a global

distribution network.2   CardLab offers its customers a variety prepaid cards,

including retail store gift cards, and by 2013 had supplied prepaid cards to more

than 35% of the Fortune 100 companies.3 During summer 2013, CardLab began

negotiations to partner with GameStop Corp. (“GameStop”), a video game,


1
  Am. Verified Compl. (“Compl.” or the “Complaint”) Wherefore clause.
2
  Id. ¶ 12.
3
  Id. ¶¶ 15, 18.
                                         1
electronics, and wireless services retailer. The negotiations contemplated that

CardLab would provide to GameStop its prepaid cards, which GameStop would

then provide to its customers in return for used games and other electronics.4

During the remainder of 2013 and early 2014, CardLab and GameStop continued

negotiations, and by early June 2014, the two companies “contemplated a lucrative

contract with an estimated 2015 gross margin of $8.6 million.”5

      On June 16, 2014, Blackhawk’s president, Talbott Roche, sent a letter to

CardLab offering to purchase CardLab, which CardLab accepted subject to due

diligence and further negotiation.6 The purchase terms included a $25 million cash

payment at closing “and a performance-based cash payment of up to $50 million,

to be made within 60 days following the end of 2015.”7 The due diligence process

persisted from June until August 2014.8 In early July, Blackhawk requested and

received details regarding CardLab’s current and prospective clients, including a

description of the GameStop contract terms.9 “Unbeknownst to CardLab . . . ,

[Interaction Communications International, Inc. (“InComm”)]—Blackhawk’s

largest competitor—had an existing contract with GameStop that contained an

4
  Id. ¶ 20.
5
  Id. ¶¶ 21-22.
6
  Id. ¶ 23.
7
  Id. The Complaint notes that CardLab saw this offer as attractive based on its
confidence in the GameStop contract, which would help achieve the performance-
based earnout payment. Id. ¶ 24.
8
  Id. ¶ 26.
9
  Id.
                                        2
exclusivity clause which specifically prohibited GameStop from selling,

distributing or marketing Blackhawk products” (the “Exclusivity Provision”).10

Haney alleges that Blackhawk and its executives were aware of the Exclusivity

Provision because “Blackhawk had similar exclusivity clauses, and Blackhawk has

since admitted to members of [CardLab] that this type of exclusivity provision was

standard among industry competitors.”11 Therefore, Haney concludes, Blackhawk

knew and failed to disclose to Sellers that consummation of the merger between

InComm and Blackhawk would preclude CardLab from finalizing its previously

negotiated contract with GameStop, at least until expiration of the exclusivity

period in August 2015.12

      Instead of disclosing the exclusivity conflict with GameStop, the Complaint

continues, in early August 2014, Blackhawk concealed and capitalized on the

information by revising the payment structure of the August 27, 2014 Agreement




10
   Id. ¶ 27.
11
   Id. (footnote omitted). The Complaint continues that “[t]here is no doubt that
[Blackhawk and InComm] were acutely aware of the details of each other’s
business relationships.” Id. ¶ 27 n.12. Haney bases this conclusion on allegations
that “it is industry practice to closely monitor competitors’ activities,” citing a
2009 lawsuit between InComm and Blackhawk in which InComm described its
relationship with Blackhawk as “fierce” and “direct,” stating that the two
companies “often compete for the same customers within the same industry,
providing similar, if not identical, types of products and services.” Id. (internal
quotation marks omitted).
12
   Id. ¶ 28.
                                        3
and Plan of Merger (the “Merger Agreement”).13 The revised Merger Agreement

authorized Blackhawk to “withhold $2.5 million from the cash payable at closing

and place that amount in escrow until GameStop signed the contract, completed the

pilot program, and gave notification of its intent to proceed with the chain-wide

rollout of CardLab’s prepaid cards.”14 CardLab, still without knowledge of the

Exclusivity Provision, agreed to the revision on the condition that CardLab receive

a full year of the GameStop earnout.15         Blackhawk, through Jerry Ulrich

(Blackhawk’s Chief Financial Officer and Chief Administrative Officer), agreed to

CardLab’s condition provided that the GameStop contract commenced no later

than April 1, 2015, and reiterated Blackhawk’s expectation that the GameStop deal

would proceed without delay.16 Based on Blackhawk’s assurances, CardLab and



13
   Id. ¶ 29.
14
    Id. The revisions contemplated that Blackhawk would pay CardLab “$1.25
million if the GameStop contract was signed by December 31, 2014, and another
$1.25 million upon written notice that the GameStop pilot was complete and that
GameStop intended to commence the rollout by February 28, 2015.” Id. ¶ 33.
15
   Id. ¶ 31.
16
   Id. ¶ 32. Haney argues that this communication was false because Ulrich, along
with other Blackhawk executives, knew of the Exclusivity Provision, which would
prevent GameStop from consummating its transaction with CardLab until the
provision expired in August 2015. Id. Blackhawk’s knowledge of the Exclusivity
Provision, Haney concludes, resulted in the GameStop portion of the Merger
Agreement amounting to nothing more than a “sham transaction.” Id. ¶ 33. Even
with a three-month extension to the earnout period due to the GameStop-related
revisions to the Merger Agreement, Blackhawk knew that the Exclusivity
Provision would prevent CardLab from “reach[ing] the $50 million 2015 earnout
payment.” Id.
                                        4
Blackhawk executed the Merger Agreement, including the revisions, on August 27,

2014.17

      Had Sellers known of the Exclusivity Provision, Haney argues, they would

have delayed execution of the Merger Agreement until the provision expired.18 As

a result of Blackhawk’s alleged concealment and opportunistic revisions, it now

stands to gain the benefits of the GameStop contract (negotiated prior to entering

into the Merger Agreement) upon the expiration of the Exclusivity Provision.19

Blackhawk’s    knowing     misrepresentations   and   concealment    of   material

information, Haney concludes, violated Section 3.3 of the Merger Agreement,

which provides, in part, that “[n]either the execution and the delivery of this

agreement or the Transaction Documents to which Parent or Merger Sub is a party,

nor the consummation of the Contemplated Transactions, will . . . violate or

conflict with any applicable Law.”20

      Haney further alleges that Blackhawk continues to violate two additional

Merger Agreement provisions. First, he argues Blackhawk’s failure to provide

certain information to Sellers violates Section 5(j) of Exhibit A to the Merger


17
   Id. ¶ 33. Haney alleges, on information and belief, that GameStop’s Director of
Pre-Owned Merchandise acknowledged that GameStop did not encounter any
issues with CardLab until the Blackhawk acquisition, and that it was the
acquisition that halted progress. Id. ¶ 34.
18
   Id. ¶ 35.
19
   Id. ¶ 36.
20
   Id. Ex. A (“Merger Agmt.”) § 3.3; accord id. ¶ 37.
                                        5
Agreement (“Section 5(j)”).      Specifically, Sellers are entitled to a “report

specifying the status of each Identified Customer and Prospect” within thirty days

of the end of each calendar month, and “the calculation of Net Revenues, Cost of

Sales Expense and Gross Profit” within thirty days following the end of each

Blackhawk fiscal quarter.21    Blackhawk, Haney alleges, has failed to provide

Sellers with the required monthly reports, which are necessary to calculate the

earnout payments to which Sellers are entitled pursuant to Section 2.10(b) of the

Merger Agreement (up to $50 million).22

      Second, Haney argues that Blackhawk breached Section 5(i) of Exhibit A to

the Merger Agreement (“Section 5(i)”), which requires that Blackhawk devote

significant commercial resources to Sellers’ “Identified Customers and

Prospects.”23 Haney alleges, on information provided by “members of the Sellers’


21
   Merger Agmt. Ex. A § 5(j).
22
   Compl. ¶¶ 39-41. Haney acknowledges that Blackhawk sent a “one-page ‘status
report’” for each of April and May 2015, but argues that the reports are conclusory
and “wholly insufficient to comply with its obligations under the Merger
Agreement.” Id. ¶ 41 n.16.
23
   Merger Agmt. Ex. A § 5(i); accord Compl. ¶ 42. Section 5(i) provides, in
relevant part, that

      [Blackhawk] shall permit each of the Key Personnel . . . to dedicate a
      commercially reasonable amount of time as appropriate for their
      position to the generation of Net Revenues from the applicable
      Identified Customers and Prospects. It is understood and agreed that
      Glen Holbert, will devote substantially all of his time and efforts to
      the Identified Customers and Prospects, unless otherwise mutually
      agreed in writing by Parent and the Seller Representative. . . . During
                                          6
group[,] that Blackhawk has not devoted, and has no intention of devoting, the

required resources to Sellers’ Accounts,”24 and that he is unable to learn the details

of such deficiencies because Blackhawk has instructed its employees not to

communicate with him regarding this matter.25 Blackhawk’s alleged breach of

Sections 5(i) and 5(j) also prevent Haney from exercising his rights under

Section 5(e) of Exhibit A to the Merger Agreement, which authorizes the Seller

Representative “to replace the Identified Customers and Prospects that are lost or

lack potential with Replacement Customers and Prospects listed in Schedule 2 of

Exhibit A to the Merger Agreement.”26




      the 2015 Contingent Payment Period, Blackhawk shall, and shall
      cause the Surviving Corporation to, dedicate commercially reasonable
      resources (both personnel and services) to the Identified Customers
      and Prospects being serviced by Blackhawk and the Surviving
      Corporation. It is understood and agreed that providing resources for
      the Identified Customers and Prospects similar to what Blackhawk
      provides for its products and services shall constitute the provision of
      commercially reasonable resources.

Merger Agmt. Ex. A § 5(i).
24
   Compl. ¶ 43. The Complaint defines “Sellers’ Accounts” as Sellers’ “Identified
Customers and Prospects,” which are listed in Schedule 1 of the Merger
Agreement. Id. ¶ 42.
25
   Id. ¶ 43.
26
   Id. ¶¶ 44-45. Such rights allow Haney to maximize Sellers’ payments under the
Merger Agreement. Id. ¶ 45. Haney contends that disclosure of details regarding
the resources Blackhawk has devoted to each account, which Blackhawk is
improperly withholding, is necessary to benefit from such rights. Id. ¶ 46.
                                          7
      Haney, in his capacity as Seller Representative, filed the initial complaint on

March 30, 2015, which Blackhawk moved to dismiss on May 4, 2015. Haney then

filed the Complaint on June 22, 2015, to which Blackhawk responded with the

present Motion to Dismiss.

                              II.      CONTENTIONS

      Blackhawk argues that the Merger Agreement subjects Haney’s claims to a

limited remedies provision that mandates alternative dispute resolution, that his

claims are premature because the appropriate earnout payment is not yet known,

and that each of the seven counts in the Complaint fails to plead a claim for

relief.27 Haney, in turn, disputes each of Blackhawk’s contentions and argues that

each count adequately states a claim for relief.28

                                    III.   ANALYSIS

A. Legal Standard on Blackhawk’s Motion to Dismiss

      When considering a motion to dismiss, this Court accepts as true all well-

pleaded facts in the Complaint, including vague allegations so long as they provide

the defendant notice of the claim.29 The Court will not, however, “accept every



27
   Def. Blackhawk Network Holdings, Inc.’s Opening Br. in Supp. of its Mot. to
Dismiss Pl.’s Am. Compl. (“Def.’s Opening Br.”) 9, 14, 16.
28
   Pl.’s Answering Br. in Opp’n to Blackhawk Network Holdings, Inc.’s Mot. to
Dismiss Pl.’s Am. Compl. (“Pl.’s Answering Br.”) 19, 24, 26, 36-37, 39, 46-48.
29
   Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531,
536 (Del. 2011).
                                            8
strained interpretation proposed by the plaintiff.”30 “Dismissal of a claim based on

contract interpretation is proper ‘if the defendants’ interpretation is the only

reasonable construction as a matter of law.’”31

B. Plaintiff Properly Alleged Fraudulent Inducement

      Section 9.8 of the Merger Agreement (“Section 9.8”) provides, in part, that

      no claim, action, or remedy shall be brought or maintained subsequent
      to the Closing Date . . . based upon any alleged misstatement or
      omission respecting an inaccuracy in or breach of any of the
      representations, warranties, or covenants of the Company or Parent
      and Merger Sub, as applicable, set forth or contained in this
      Agreement; provided, however, that nothing in this Agreement shall
      be deemed to prevent or restrict the bringing or maintaining of any
      such claim or action, or the granting of any such remedy, to the extent
      that the same shall have been the result of fraud by any such Person or
      by the Company.

Blackhawk argues that, in light of Section 9.8, “the only suits that can be brought

are ones based upon fraud arising from reps, warranties or covenants,”32 and that

because Haney has not done so, he “must pursue these claims pursuant to the

mandatory and exclusive indemnification procedure and may not do so in this

Court.”33 Haney responds that Section 9.8 does not preclude fraud claims based on


30
   Caspian Alpha Long Credit Fund, L.P. v. GS Mezzanine P’rs 2006, L.P., 93
A.3d 1203, 1205 (Del. 2014).
31
    Id. (quoting Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB
Managers, Inc., 691 A.2d 609, 613 (Del. 1996)).
32
   Tr. of Oral Arg. on Def.’s Mot. to Dismiss (“Oral Arg. Tr.”) 10.
33
   Def.’s Opening Br. 14. Specifically, Section 9.5 of the Merger Agreement
creates a dispute resolution process as an exclusive means for resolving certain
enumerated disagreements, which requires providing the indemnifying party
                                         9
statements made outside the scope of the Merger Agreement.34 To support this

position, he argues that the word “such” in the “provided, however” clause of

Section 9.8 relates back only to the portion of the section that precludes claims

“based upon any alleged misstatement or omission,” not also to the qualifying

phrase “respecting an inaccuracy in or breach of any of the representations,

warranties, or covenants . . . set forth or contained in this Agreement.”35

      At the motion to dismiss stage, “a trial court cannot choose between two

differing reasonable interpretations of ambiguous documents.”36 An ambiguity

exists where a contractual provision is “reasonably or fairly susceptible of different

interpretations.”37   Here, each party’s interpretation is reasonable, that is, the

“provided, however” clause may relate back to the entire preceding clause, or it

may relate back solely to the portion precluding claims based upon an alleged

misstatement or omission. Therefore, the Court accepts Plaintiff’s interpretation of

the Merger Agreement’s limited remedies provision as reasonably conceivable.

Accordingly, for purposes of this Motion to Dismiss, Section 9.8 does not preclude

“reasonably prompt” notice of the claim and allowing the indemnifying party thirty
days after receipt of such notice to respond in writing to the claim, after which,
assuming no such response, the indemnified party may “pursue such remedies as
may be available to [it] on the terms and subject to the provisions of this
Agreement.” Merger Agmt. § 9.5.
34
   Pl.’s Answering Br. 21-22; Oral Arg. Tr. 53.
35
   Oral Arg. Tr. 53.
36
   Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691
A.2d 609, 613 (Del. 1996).
37
   Id.
                                          10
fraud claims based on “alleged misstatement[s] or omission[s]” occurring outside

the four corners of the Merger Agreement.38

      Still impeding Plaintiff’s fraud claim, however, is an integration clause

located in Section 11.14 of the Merger Agreement (“Section 11.14”), which

provides that no party or affiliate makes any representation with respect to

CardLab, except those set forth in the Merger Agreement, and that the Merger

Agreement constitutes the entire agreement and supersedes all prior understandings

and communications.39 Blackhawk argues that this provision confines the parties’

representations, warranties, and agreements to the Merger Agreement, and

therefore “leaves no room for the parties to rely upon any extra-contractual

representations or warranties.”40 Blackhawk’s interpretation of Section 11.14’s


38
   Merger Agmt. § 9.8.
39
   Id. § 11.14. Section 11.14 provides, in full, that
        [n]one of the Company, the Sellers, nor any of their respective
        Affiliates, officers, directors, employees, or agents makes any
        representation or warranty, express or implied, as to any financial or
        other matter with respect to the Company, or their respective
        businesses, operations or assets, except for the representations and
        warranties of the Company expressly set forth in this Agreement. This
        Agreement, the Transaction Documents and the Confidentiality
        Agreement constitute the sole and entire agreement among the Parties
        with respect to the subject matter of this Agreement and supersede all
        prior and contemporaneous understandings, agreements, or
        representations, whether written or oral, by or among the Parties with
        respect to such subject matter, including the Letter of Intent dated
        June 20, 2014.
Id.
40
   Def.’s Opening Br. 12-13.
                                         11
scope is, however, contrary to established precedent. Delaware law does not

preclude fraud claims based on extra-contractual statements merely because the

contract contains an integration clause.41 Instead, the “integration clause must

contain ‘language that . . . can be said to add up to a clear anti-reliance clause by

which the plaintiff has contractually promised that it did not rely upon statements

outside the contract’s four corners in deciding to sign the contract.’”42

      In Kronenberg, this Court concluded that “the defendants cannot escape

responsibility for the material misstatements of fact made to the plaintiffs in

connection with the plaintiffs’ decision to invest in [a company]” because the

integration clause, similar to the clause here, “is not an unambiguous

acknowledgement by the plaintiffs that they were not relying on factual statements

not contained within the [contract] itself.”43     Because Section 11.14 does not



41
   Abry P’rs V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1058-59 (Del. Ch.
2006).
42
   Id. at 1059 (alteration in original) (quoting Kronenberg v. Katz, 872 A.2d 568,
593 (Del. Ch. 2004)).
43
   Kronenberg, 872 A.2d at 594. This rule creates a “sensible balance between
fairness and equity—parties can protect themselves against unfounded fraud claims
through explicit anti-reliance language. If parties fail to include unambiguous anti-
reliance language, they will not be able to escape responsibility for their own
fraudulent representations made outside of the agreement’s four corners.” Abry
P’rs, 891 A.2d at 1059; see also Addy v. Piedmonte, 2009 WL 707641, at *19
(Del. Ch. Mar. 18, 2009) (“A balance must be struck, however, between the
competing interests of allowing sophisticated parties to fashion agreements among
themselves without intervention by the courts and of protecting parties from
counterparties attempting to wash clean their own outright lies and fraud.”).
                                          12
contain “express ‘anti-reliance’” language, it does not preclude Plaintiffs’ fraud

claims based on alleged extra-contractual statements.44

      Although Sections 9.8 and 11.14 do not, at this stage, preclude Plaintiff’s

fraud claims, to survive Blackhawk’s Motion to Dismiss, Plaintiff still must

adequately allege fraudulent conduct. To do so, Haney must plead with specificity

facts from which the Court may reasonably infer that: (1) Blackhawk falsely

represented or omitted facts that it had a duty to disclose, (2) Blackhawk knew or

believed that the representation was false or made the representation with a

reckless indifference to the truth, (3) Blackhawk intended to induce Sellers to act

or refrain from acting, (4) Sellers justifiably relied on the representation, and



44
   Kronenberg, 872 A.2d at 593. Blackhawk also argues that Haney’s claims are
premature because (1) the appropriate earnout payment is not yet known and
therefore plaintiff’s claims are speculative and premature, and (2) the Merger
Agreement allows CardLab, for purposes of calculating earnout revenue, to
substitute any existing or potential customer to replace the loss of existing or
prospective customers. Def.’s Opening Br. 14-15. Each of these arguments fails:
(1) Plaintiff has suffered $2.5 million in calculable damages in the form of the
withheld purchase price, and (2) Plaintiff has alleged facts from which the Court
may infer that Blackhawk’s actions have precluded Plaintiff from exercising his
rights of substitution. Pl.’s Answering Br. 24-25. Further, Haney’s claim relates
to a specific potential customer, GameStop, without which, Haney alleges, Sellers
cannot reach the maximum earnout. Compl. ¶ 33. The fact that a contract
provision may allow Sellers to reduce the harm of Blackhawk’s alleged fraud does
not exculpate Blackhawk therefrom. Finally, damages need not be proven with
specificity at the motion to dismiss stage. See Anglo Am. Sec. Fund, L.P. v. S.R.
Glob. Int’l Fund, L.P., 829 A.2d 143, 156 (Del. Ch. 2003) (“Proof of [alleged]
damages and of their certainty need not be offered in the complaint in order to state
a claim.”).
                                         13
(5) Sellers’ reliance caused injury.45   Blackhawk’s Opening and Reply briefs

dispute only whether Haney adequately plead facts from which the Court may infer

Blackhawk’s knowledge of and Haney’s reliance on the alleged misrepresentations

or omissions. Therefore, the Court assumes for purposes of this Motion to Dismiss

that the Complaint satisfies the remaining elements.

      Haney must present “specific facts that lead to a reasonable inference that”

Blackhawk had actual knowledge of the alleged Exclusivity Provision.46

Blackhawk argues that Plaintiff’s allegations that Blackhawk’s executives were

familiar with the industry, that these executives were responsible for Blackhawk’s

SEC filings (which acknowledge exclusive relationships between potential partners

and Blackhawk’s competitors), and that Blackhawk and InComm have been

“embroiled in patent litigation since 2009” are insufficient to support a reasonable

inference that Blackhawk “knew or was in a position to know of GameStop’s

alleged contract with InComm.”47

      While such facts do not show with specificity that Blackhawk had the

alleged knowledge, they are “specific facts,” and they do, even if barely, support a

reasonable inference that Blackhawk, through its executives, had actual knowledge

45
   Eurofins Panlabs, Inc. v. Ricerca Biosciences, LLC, 2014 WL 2457515, at *7
(Del. Ch. May 30, 2014) (quoting Abry P’rs, 891 A.2d at 1050).
46
   Fortis Advisors LLC v. Dialog Semiconductor PLC, 2015 WL 401371, at *6
(Del. Ch. Jan. 30, 2015).
47
   Def. Blackhawk Network Holdings, Inc.’s Reply Br. in Supp. of its Mot. to
Dismiss Pl.’s Am. Compl. (“Def.’s Reply Br.”) 11-12.
                                         14
of the Exclusivity Provision.     The facts (1) that Blackhawk’s executives are

familiar with the industry (and specifically the exclusive nature of Blackhawk’s

competitors’ partner engagements); (2) that Blackhawk and InComm “often

compete for the same customers within the same industry, providing similar, if not

identical, types of products and services;”48 (3) that Blackhawk sought and

received CardLab’s approval to revise the Merger Agreement’s payment structure

to authorize Blackhawk to withhold $2.5 million until GameStop signed the

contract; and (4) that even with the three month extension to the earnout period, the

Exclusivity Provision would prevent Sellers from reaching the $50 million earnout

payment, support a reasonable inference that Blackhawk knew of the Exclusivity

Provision and failed to disclose that information to Haney.49

      Further, CardLab justifiably relied on Blackhawk’s statements and

omissions. Blackhawk argues that because CardLab negotiated with GameStop for

over a year, and because the Merger Agreement barred Blackhawk from contacting

GameStop until after the closing of the Merger Agreement, it was Blackhawk that

relied on CardLab’s representations regarding GameStop, not the other way


48
  Pl.’s Answering Br. 29; Compl. ¶ 27 n.12.
49
  This Court considers “the Complaint as a whole” to infer knowledge. NACCO
Indus., Inc. v. Applica Inc., 997 A.2d 1, 27 (Del. Ch. 2009). Further, the Court of
Chancery Rule 9(b) heightened pleading requirement in fraud cases “takes into
account whether ‘the facts lie more in the knowledge of the opposing party than of
the pleading party.’” Id. at 26 (quoting H-M Wexford LLC v. Encorp, Inc., 832
A.2d 129, 146 (Del. Ch. 2003)).
                                         15
around.50 This Court, however, recognizes that reliance is “a difficult line to draw”

and, in certain cases, may not be appropriately addressed at the motion to dismiss

stage.51 Here, Blackhawk’s allegation that CardLab was in a better position than

Blackhawk to learn of the Exclusivity Provision does not itself establish that

Plaintiff   did   not   rely,   or   should    not   have   relied,   on   Blackhawk’s

misrepresentations.      Considering the facts that Blackhawk’s executives,

knowledgeable of the industry, stated that “[n]o one expects a delay in getting the

GameStop deal signed,”52 that Blackhawk allegedly actively concealed information

regarding the Exclusivity Provision,53 and that CardLab had no duty to engage in

sufficient due diligence of GameStop to uncover a single provision in a particular

contract between GameStop and a business partner, the Court is unwilling, at least

at this stage in the proceeding, to grant Blackhawk’s Motion to Dismiss on reliance

grounds.




50
    Def.’s Opening Br. 21. The fact that the Merger Agreement prevented
Blackhawk from communicating with GameStop until after the closing does not,
however, preempt Haney’s argument that Blackhawk knew of the agreement
between InComm and GameStop prior to commencing Merger Agreement
negotiations.
51
   NACCO Indus., 997 A.2d at 31-32.
52
    Compl. ¶ 32 (alteration in original) (quoting an August 8, 2014 email from
Ulrich to David Jones (founder and former Chief Executive Officer of CardLab
and currently serving as Vice President of Global eCommerce for Blackhawk)).
53
   Id. ¶ 2.
                                          16
C. Plaintiff Has Not Stated a Claim for Breach of Section 3.3 of the Merger
   Agreement

      Section 3.3 of the Merger Agreement (“Section 3.3”) provides that neither

the Merger Agreement nor any transaction contemplated therein violates any

applicable law or results in a breach of any contract to which either Blackhawk or

CardLab is a party “or by which it is bound.”54 Haney argues that Blackhawk

breached Section 3.3 because any post-closing contract between GameStop and

CardLab would force GameStop to violate the Exclusivity Provision.55 Contrary to

Haney’s argument, however, Section 3.3 does not represent that the Merger

Agreement will not interfere with prospective contracts between CardLab and

54
   Section 3.3 provides, in full, that
        [n]either the execution and the delivery of this Agreement or the
        Transaction Documents to which Parent or Merger Sub is a party, nor
        the consummation of the Contemplated Transactions, will (a) violate
        or conflict with any applicable Law or any provision of their
        respective Organizational Documents, or (b) conflict with, result in a
        breach of, constitute a default under, result in the acceleration of,
        create in any party the right to accelerate, terminate, modify, or
        cancel, or require any notice, consent, waiver, or approval under any
        material agreement, contract, lease, license, instrument, or other
        arrangement to which Parent or Merger Sub is a party or by which it is
        bound or to which any of its assets are subject, in which such default,
        acceleration, termination, modification, cancellation, or the failure to
        obtain such consent, waiver or approval would have a Merger Sub
        Material Adverse Effect. Neither Parent nor Merger Sub is required
        to give any notice to, make any filing with, or obtain any
        authorization, consent, or approval of any Governmental Entity in
        order to consummate the Contemplated Transactions, except the filing
        of the Certificate of Merger with the Secretary of State of Delaware in
        accordance with the DGCL.
55
   Pl.’s Answering Br. 37.
                                          17
potential customers.    As Blackhawk notes, “Section 3.3 only relates to the

Contemplated Transactions that are a necessary part of Blackhawk’s purchase of

CardLab.”56 Further, because CardLab and GameStop had not executed their

agreement prior to finalizing the Merger Agreement, Sellers cannot argue that the

GameStop contract was one to which CardLab was “bound.”                    Therefore,

Blackhawk’s motion to dismiss count two of the Complaint is granted.

D. The Complaint States a Claim Entitling Plaintiff to Section 5(j) Reports

      Haney argues, and Blackhawk concedes, that Haney is entitled to monthly

reports pursuant to Section 5(j) of the Merger Agreement (“Section 5(j)”). 57 While

Blackhawk acknowledges that the sufficiency of its productions “cannot be

addressed at the motion to dismiss stage,” it contends that the reports it has

provided to Haney to date “contain more than the information required by the

Merger Agreement,” and that therefore this claim is moot.58 As alleged in the


56
   Def.’s Reply Br. 18. The Merger Agreement defines Contemplated Transactions
as “transactions contemplated by this Agreement and the other Transaction
Documents,” Merger Agmt. § 1, and Transaction Documents as “this Agreement
and the other agreements, certificates and documents to be executed and delivered
pursuant to this Agreement.” Id. at Recital A.
57
   Def.’s Reply Br. 18.
58
   Id. at 19; Def.’s Opening Br. 23-24. Blackhawk also argues that while Haney
may seek specific performance, any claim for monetary damages due to a failure to
produce Section 5(j) reports is speculative and violates the Merger Agreement’s
exclusive remedy provision. Def.’s Reply Br. 19. Blackhawk, however, raised
this argument for the first time in its Reply Brief, and the Court therefore treats it
as waived at this time. Thor Merritt Square, LLC v. Bayview Malls LLC, 2010 WL
972776, at *5 (Del. Ch. Mar. 5, 2010) (“The failure to raise a legal issue in an
                                         18
Complaint, however, Blackhawk has not produced any monthly reports for January

through March of 2015, and the April and May reports are conclusory and contain

insufficient information.59 Blackhawk’s Motion to Dismiss is therefore denied

with respect to count three of the Complaint.

E. Plaintiff Has Not Stated a Claim for Breach of the Implied Covenant
   of Good Faith and Fair Dealing

      Haney argues that the Complaint properly pleads two implied covenant

claims: “(1) Blackhawk breached the implied covenant by deliberately acting to

keep Sellers from earning the 2015 Contingency Payment; and (2) Blackhawk

breached the implied covenant by failing to disclose the existence of the

exclusivity agreement.”60 As explained below, however, neither of Haney’s claims

invokes the implied covenant of good faith and fair dealing.



opening brief generally constitutes a waiver of the ability to raise that issue in
connection with a matter under submission to the court.”); Franklin Balance Sheet
Inv. Fund v. Crowley, 2006 WL 3095952, at *4 (Del. Ch. Oct. 19, 2006) (“[A]
party is obliged in its motion and opening brief to set forth all of the grounds,
authorities and arguments supporting its motion. A movant should not hold
matters in reserve for reply briefs. Instead, reply briefs should consist of material
necessary to respond to the answering brief.” (footnote omitted)); Emerald P’rs v.
Berlin, 2003 WL 21003437, at *43 (Del. Ch. Apr. 28, 2003) (“It is settled
Delaware law that a party waives an argument by not including it in its brief.”),
aff’d, 840 A.2d 641 (Del. 2003). Blackhawk further argues in its Reply Brief that
Plaintiff is not entitled to monetary damages for its count four claim for breach of
Section 5(i). Def.’s Reply Br. 19-20. This argument, too, is absent from
Blackhawk’s Opening Brief and is therefore waived.
59
   Compl. ¶¶ 41-42, n.16.
60
   Pl.’s Answering Br. 39.
                                         19
      To state a claim for breach of the implied covenant, a plaintiff “must allege

[1] a specific implied contractual obligation, [2] a breach of that obligation by the

defendant, and [3] resulting damage to the plaintiff.”61 The implied covenant,

however, “only applies where a contract lacks specific language governing an issue

and the obligation the court is asked to imply advances, and does not contradict,

the purposes reflected in the express language of the contract.”62       Where the

contract specifically addresses the issue complained of, “[e]xisting contract terms

control, [and] implied good faith cannot be used to circumvent the parties’ bargain,

or to create a ‘free-floating duty . . . unattached to the underlying legal

document.’”63




61
   Kelly v. Blum, 2010 WL 629850, at *13 (Del. Ch. Feb. 24, 2010) (alterations in
original) (quoting Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10,
1998)).
62
   All. Data Sys. Corp. v. Blackstone Capital P’rs V L.P., 963 A.2d 746, 770 (Del.
Ch.), aff’d, 976 A.2d 170 (Del. 2009). While the Supreme Court has maintained
that a contractual gap is not necessary to state a claim for breach of the implied
warranty where one party “acted arbitrarily or unreasonably, thereby frustrating the
fruits of the bargain,” Gerber v. Enter. Prods. Hldgs., LLC, 67 A.3d 400, 421 (Del.
2013), overruled on other grounds by Winshall v. Viacom Int’l, Inc., 76 A.3d 808
(Del. 2013), the Merger Agreement explicitly governs the allegedly wrongful
behavior and Haney has not stated facts from which the Court may infer the
operation of an implied covenant.
63
   Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441 (Del. 2005) (third
alteration in original) (footnote omitted) (quoting Glenfed Fin. Corp., Commercial
Fin. Div. v. Penick Corp., 647 A.2d 852, 858 (N.J. Super. Ct. App. Div. 1994)).
                                         20
      First, the Merger Agreement specifically addresses Haney’s claim that

Blackhawk deliberately prevented Sellers from achieving earnout thresholds. As

quoted more fully above, Section 5(i) requires that Blackhawk permit “Key

Personnel . . . to dedicate a commercially reasonable amount of time as appropriate

for their position to the generation of Net Revenues,” contemplates that Glen

Holbert will “devote substantially all of his time and efforts to the Identified

Customers and Prospects,” and requires that Blackhawk dedicate commercially

reasonable resources (both personnel and services) to the Identified Customers and

Prospects.”64    The Merger Agreement defines “commercially reasonable

resources” as “similar to what Blackhawk provides for its products and services.”65

      Haney argues that, while Section 5(i) requires that Blackhawk dedicate

personnel time and resources, it “does not impose a standard for evaluating the

conduct of Blackhawk personnel in attempting to generate revenues from the

Identified Customers and Prospects.”66       Haney supports this argument by

attempting to distinguish the provision at issue here from that in Fortis Advisors,

which provided that “Parent shall, and shall cause its Affiliates . . . to, use

commercially reasonable best efforts, in the context of successfully managing the

business of the Surviving Corporation, to achieve and pay the Earn–Out


64
   Merger Agmt. Ex. A § 5(i).
65
   Id.
66
   Pl.’s Answering Br. 42.
                                        21
Payments in full.”67       The agreement also contained “a number of specific

obligations and prohibitions concerning [the purchaser’s] operation of the

business.”68 The Fortis Advisors Court held that the plaintiff had not “identified,

as it must, a gap in the Merger Agreement to be filled by implying terms through

the implied covenant.”69

      Haney argues that the “best efforts” standard and specific obligations present

in the Fortis Advisors agreement distinguish it from the Merger Agreement. To

the contrary, however, Section 5(i) provides specific requirements by which

Blackhawk must abide to avoid breaching the contract.70 Further, not only has

Haney failed to identify a gap in the Merger Agreement, his allegation in the

Complaint that Blackhawk “intended to deprive Sellers from achieving their 2015

contingent payment” relies solely on his claim that Blackhawk violated Sections

5(i) and 5(j).71 Where a plaintiff has failed to identify a gap in the contract, merely

repeating the defendant’s allegedly improper acts or omissions already the subject

of a separate breach of contract claim is insufficient to support a claim for breach

of the implied covenant of good faith and fair dealing.72


67
   Fortis Advisors, 2015 WL 401371, at *2 (alteration in original).
68
   Id.
69
   Id. at *4 (footnote omitted).
70
   See supra text accompanying notes 64-65.
71
   Compl. ¶¶ 38-43.
72
    Fortis Advisors, 2015 WL 401371, at *4-5 (dismissing an implied covenant
claim because the plaintiff “failed to identify any ‘interstitial space in which the
                                          22
      Second, Haney argues that Blackhawk’s failure to disclose the existence of

the Exclusivity Provision after the Merger Agreement closed constitutes a breach

of the implied covenant of good faith and fair dealing.73 This alleged “continuing

obligation,” Haney contends, would prevent CardLab from achieving certain

earnout payments.74 Here too, however, Haney fails to identify a gap in the

Merger Agreement that would allow operation of the implied covenant.             As

Blackhawk notes, the Merger Agreement provides for continuing updates

regarding actual and prospective customers. Specifically, Section 5(j) requires

Blackhawk to deliver to Haney, within thirty days of the end of each month, “a

written report specifying the status of each Identified Customer and Prospect.”

Notably, count three of the Complaint alleges breach of Section 5(j) due to

Blackhawk’s “failure to provide Plaintiff with the [required] information.”75

Therefore, to the extent Blackhawk had a continuing obligation to inform Sellers of

the Exclusivity Provision, the obligation is subsumed within the express provisions

of the Merger Agreement, and Haney’s implied covenant claim must fail.



doctrine of the implied covenant might operate’ regarding any of the six actions or
failures of [the defendant],” which were already subject to a separate breach of
contract claim).
73
   Pl.’s Answering Br. 44-45.
74
   Id. at 45.
75
    Compl. ¶ 65. Whether any Section 5(j) report must include the information
allegedly withheld is a question of fact not ripe for determination at this stage in
the proceeding.
                                        23
F. Plaintiff Has Stated a Claim for Unjust Enrichment

      The Complaint alleges that Blackhawk has been unjustly enriched by the

$2.5 million in merger payments that Blackhawk conditioned on timely execution

of the GameStop contract and the revenue that will accrue to Blackhawk (with no

earnout consequence) if it executes the GameStop contract upon expiration of the

Exclusivity Provision.76 Blackhawk argues that this unjust enrichment claim fails

because “there is no dispute that the parties’ relationship is governed by the Merger

Agreement.”77    To the contrary, however, count one of the Complaint seeks

reformation of the Merger Agreement alleging that Blackhawk fraudulently

induced Haney’s assent.78     Although merely suggesting that the validity of a

contract may be in doubt is insufficient to support a claim for unjust enrichment, a

claim that the underlying agreement is subject to rescission due to fraudulent

conduct or omissions is sufficient to do so.79 Because Haney’s fraud allegation is

sufficient to withstand Blackhawk’s motion to dismiss, and because Haney seeks

equitable remedies, including reformation of the Merger Agreement and

imposition of a constructive trust to prevent Blackhawk from improperly

benefitting from its allegedly wrongful conduct,80 Haney has adequately plead a


76
   Id. ¶¶ 86-87.
77
   Def.’s Opening Br. 28.
78
   Compl. ¶¶ 47-53.
79
   In re Student Fin. Corp., 2004 WL 609329, at *7 (D. Del. Mar. 23, 2004).
80
   Compl. ¶¶ 88-89.
                                         24
claim for unjust enrichment. Accordingly, Blackhawk’s Motion to Dismiss count

six for unjust enrichment is denied.

G. Plaintiff Has Stated a Claim for Negligent Misrepresentation

      A claim for negligent misrepresentation, otherwise known as equitable

fraud, “requires proof of all of the elements of common law fraud except ‘that

plaintiff need not demonstrate that the misstatement or omission was made

knowingly or recklessly.’”81 However, this doctrine may only be applied where

      one of the two fundamental sources of equity jurisdiction exist: (1) an
      equitable right founded upon a special relationship over which equity
      takes jurisdiction, or (2) where equity affords its special remedies,
      e.g., “rescission, or cancellation; where it is sought to reform a
      contract . . . or to have a constructive trust decreed.”82

      Blackhawk argues that, because it and CardLab were sophisticated parties

and engaged in an arm’s length transaction, Haney’s claim for negligent

misrepresentation “did not provide a sufficiently ‘firm[] basis in equity

jurisdiction’ to justify an equitable fraud claim.”83 In U.S. West, however, the

plaintiff merely offered “facts that fail[ed] to establish common law fraud coupled

with [a] request for an injunction.”84 Here, Plaintiff (1) has pleaded facts from


81
   Williams v. White Oak Builders, Inc., 2006 WL 1668348, at *7 (Del. Ch. June 6,
2006) (quoting H-M Wexford, 832 A.2d at 144), aff’d, 913 A.2d 571 (Del. 2006).
82
   U.S. W., Inc. v. Time Warner Inc., 1996 WL 307445, at *26 (Del. Ch. June 6,
1996) (alteration in original).
83
   Def.’s Opening Br. 32 (alteration in original) (quoting U.S. W., Inc., 1996 WL
307445, at *26).
84
   U.S. W., Inc., 1996 WL 307445, at *26.
                                        25
which the Court may reasonably infer that Blackhawk engaged in fraudulent

conduct, and (2) seeks multiple equitable remedies, including reformation and

imposition of a constructive trust.85 Blackhawk’s Motion to Dismiss Plaintiff’s

claim for negligent misrepresentation is therefore denied.

H. Plaintiff Has Stated a Claim for Reformation

      To support a claim for reformation, “the party seeking such form of relief

must plead with particularity the ingredients on which it is based, namely mutual

mistake or fraud, Rule 9(b).”86 Blackhawk argues that Haney is not entitled to

reformation because, under Delaware law, “courts require a heightened showing of

a party’s true intentions before considering reformation.”87 Here, however, Haney

has alleged facts from which the Court may reasonably infer that Blackhawk

fraudulently induced CardLab to enter into the Merger Agreement,88 and that a

“specific prior understanding” existed with respect to the GameStop contract, that

is, that the Merger Agreement would not preclude its execution. Because it is


85
   Pl.’s Answering Br. 47-48. Haney does not, however, allege that any special
relationship exists between the parties. Krahmer v. Christi’s Inc., 903 A.2d 773,
785 (Del. Ch. 2006) (dismissing a negligent misrepresentation claim for failure to
adequately allege the existence of a special relationship).
86
   Gracelawn Mem’l Park, Inc. v. E. Mem’l Consultants, Inc., 280 A.2d 745, 748
(Del. Ch. 1971), aff’d, 291 A.2d 276 (Del. 1972).
87
   Def.’s Opening Br. 34.
88
   Blackhawk further argues that to justify reformation, Plaintiff must plead fraud
in the execution, as opposed to fraud in the inducement as Haney does here. Id.
at 35. Blackhawk does not cite any Delaware precedent, however, and wholly
abandons this argument in its Reply Brief.
                                         26
reasonably conceivable that Blackhawk fraudulently induced CardLab to enter into

the Merger Agreement, Haney has stated a claim for reformation.89

                             IV.   CONCLUSION

      For the reasons stated, Blackhawk’s Motion to Dismiss is granted with

respect to counts two (breach of Section 3.3) and five (breach of the implied

covenant of good faith and fair dealing) of the Complaint. With respect to Haney’s

remaining claims, Blackhawk’s Motion to Dismiss is denied.

      An implementing order will be entered.




89
   Blackhawk’s argument that reformation is not warranted because the Merger
Agreement allows Plaintiff to replace customers on Schedule 1 and therefore
compensate for underperformance is inapposite. That the Merger Agreement
provides a mechanism by which Plaintiff may mitigate a business risk does not
preclude an otherwise available remedy.
                                       27
