efiled: jan 29 2010 2:30p transaction id

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IN THE COURT OF CHANCERY O F THE

EFi led: Jan 29 2010 2:30PTransact ion ID 29296568Case No. 3718-VCPSTATE OF DELAW ARE

GREAT A MERICAN OPPORTUN ITIES, INC. , )Plaintiff ,

v.iv i l Act ion No. 3718-VCPCHERRYD ALE FUND RAISING, LLC, n /k /aELAD YRREHC, L.L.C. and DREWMCM ANIGLE, IN HIS SOLE AND L IMITEDCAPACITY AS THE ASSIGNEE FOR THEBENEFIT OF ELAD YRREHC, L.L.C.,Defendants .

MEM ORANDUM OPINIONSubmitted: Septem ber 11, 2009 De cided: January 29, 2010

Sean J. Bellew, Esquire, David A. Felice, Esquire, BALLARD SPAHR LLP,Wilmington , De laware ; A ttorneys for Plaintiff Great A m erican Opportunities, Inc.Raym ond J . DiCa mi l lo , Esquire , Margot F . Al icks, Esqui re , RICHARD S, LAYT ON &FINGER, P .A., W i lming ton , De l aware ; A ttorneys f or Defendant Drew M cM anigle asA ssignee of Eladyrrehc, L L C f /k/a Cherrydale Fundraising, LL C

PAR SON S, Vice Chancellor.


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This act ion focuses on ev en ts tha t occurred in the mon ths before and a f ter theacquis i tion of subs tan t ia l ly a l l asse ts o f Kathryn Be ich, Inc . ("KB") by Grea t A mer icanOpportuni t i e s , Inc . ("Great Ame rican") . The case inv olves two c la ims m ade by GreatAme rican a ga ins t a th ird compa ny, Cherrydale Fun dra is ing , LLC ("Cherrydale") : F irs t ,tha t Cherrydale tor t ious ly in ter fered wi th Grea t Ame r ican ' s con trac tua l and prospec t ivebusiness relationships with certain of its employees and customers; and second, thatCherrydale w il l fully and maliciously misappropria ted Great American 's trade se crets .

On M ay 16, 2008, I entered a Prelim inary Injunction prohibit ing Cherrydale fromengaging in much of the activity challenged in the Complaint. That PreliminaryInjunct ion rema ins in ef fect .

The case has now been t r ied on the mer i ts and is before me based on the par t ies 'post - t r ia l br ie f s an d ora l argumen t . For the reason s s t a ted in th i s Opinion, I f ind that anum ber of poor dec i s ions we re made an d wrongfu l ac t ions were performed by peopleworking as Cherrydale's agents and are attributable to Cherrydale. Thus, I hold thatCherrydale tor t iously in te r fe red wi th Great Am erican 's con t rac tual re la t ionships as tothree former KB employees by ent icing or encouraging them to breach several provis ionsin their employment contracts. Additionally, I hold that Cherrydale willfully andmaliciously misappropria ted cer ta in of KB 's trade se crets .

Despite Cherrydale 's proven wrongdoing, however, Great American largely fa i ledto meet its burden of proof as to damages. Although Great American soughtcompensa t ion da mages for i t s ac tua l losses in excess of $1 mil l ion , i t fa i led to prove tha taspect of i ts cla im. Rather , the only compen satory dama ges the record supports are based

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on the degree of Cherrydale's unjust enrichment. Those damages total $61,538. Inaddition, because Cherrydale willfully and maliciously misappropriated Great

Am erican 's t rade secre t s , I awa rd Great American a n addi t iona l $61,538 in exemplarydama ges an d one hal f of i t s reasona b le a t torneys ' f ees incurred in con nect ion w i th th islitigation.

Final ly , in rega rd to Great Ame rican 's mot ion to hold Cherrydale in con tempt ofthe Preliminary Injunction based on actions its agents took in May 2008, I findCherrydale l iable for contempt an d, as a result , awa rd Great American a l l of i ts a t torneys 'fees an d expenses i t incurred in prosecuting i ts motion for contem pt.IACTUAL BACKGROUND

A .he PartiesPlain t i f f , Great A merican , is a Ten nes see corporat ion w i th i t s princ ipal p lace ofbusiness in Na shvi l le , Tenn essee . De fenda n t , Cherrydale , i s a Delaw are l imi ted l iab i li tycompany with i t s princ ipa l p lace of bus iness in Al len town, Penn sy lvan ia . This case a lsore la tes to KB, a now d efunct , non par ty Delaw are corpora t ion which had i t s pr incipa lplace of business in I l l inois .

At the t ime of the even ts giving r ise to this case, Great Ame rican, Cherrydale, andKB com peted wi th one a nother in the product and se rv ice-base d fundrai s ing indust ry .Gen era l ly , par t ic ipan ts in the fundra is ing indus t ry market an d dis t r ibute products andservices to nonprofit organizations including schools, student clubs, Parent TeacherAssociations (PTAs), church groups, and civic organizations. These groups, in turn,rese l l the produc ts to ra ise m oney for ev en ts a nd a c t iv i t ies . Grea t Ame r ican , Cherrydale ,

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and KB each participated in this industry, marketing similar products and servicesincluding chocolates , confect ions, gif t wrap, and ma gazine subscr ipt ions.

Fundrais ing companies typical ly sel l these products and services through a team ofsa les representa t ives a ss igned to de f ined geographical " te rri tories" across the count ry.Many of these sales reps are former teachers and educators, school coaches, orhomem akers an d may ea rn be tween $80,000 an d $120,000 a yea r .' W hen s tar t ing ou t ,sa les reps ma y spend yea rs in the ir ass igned te r ri tor ies dev eloping contac ts wi th schoolprincipals , PTA presidents , commun ity and organizat ion al leaders and others before theybegin to ma ke a profi t for their fundrais ing com pany. 2 Addit ional ly, an experienced salesrep's annual sales may fluctuate because the leaders at these organizations are oftens tuden ts or the ir paren ts and, consequent ly , con tac ts change f requent ly an d year- to-yearturnover in cus tomers i s h igh. 3 Finally, because of the potential for conflict resultingfrom sales reps working in the same a ss igned terr i tory, fundrais ing com panies see king tohire ne w sa les reps of ten consider the potent ia l for terr i tor ia l ov er lap.4

B .actsOn Apr il 24 , 2008, a f te r weeks of n egot ia t ion , Grea t Ame r ican c losed on an Asse tPurchase Agreement (the "APA") with KB whereby Great American purchasedTrial Tra ns cript ("T. Tr.") 251, 280 (Bel l i ) . W here the iden t i ty of the witn ess isnot clea r from the text, it is indicated parenthetical ly, as in this case.

2d. at 310 (Be lli), 733-34 (So uthern), 978-79 (Fisher).3d. at 250 (Belli), 631 (Hoffrichter), 788, 812 (Southern ).4d. at 641-42 (Hoffrichter).3


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substant i a l ly a l l of KB 's asse t s for $9 .3 mi l l ion. 5 Grea t Am er ican 's c la ims in this casear ise f rom ac t ions taken by Cherrydale an d i t s represen ta t ives dur ing the m onths leadingup to and fol lowing that acquis it ion.

Beca use th is ac t ion inv olves so ma ny players , I beg in by iden t i fy ing some of thekey par t icipan ts . Many of Grea t Ame r ican ' s fac tua l c la ims cen ter on S tev en H offr ich ter,who worked for Cherryda le as i t s Na t iona l Sa les M an ager and par t ic ipa ted heavi ly inCherrydale's plan to recruit KB employees. This action also involves DarleneW il liamson , a former KB sa les represen ta t ive an d regiona l an d na t iona l t r a in ing mana gerwho joined Cherrydale as an independent contractor in November 2007. In addition,Great Am erican 's c la ims focus on the ac t ions of three former KB employees, GregorySouthern, Richard Fisher, and Michael Johnson, each of whom joined Cherrydalebetween March and June 2008. Finally, the record contains numerous references tocommun icat ions wi th and a c t ions t aken by Alan Kraf t , Cherrydale 's Pres ident , Howa rdLightstone, Cherrydale's Chief Financial Officer, and Larry Rosen, Cherrydale'sChairman .

1.herrydale's Recruiting PlanBeginn ing in l a te 2007, Hof f richte r ac t ive ly se t ou t to expan d Cherrydale 's sa lesforce with the assistance of Ross Cherry, a then-part owner of Cherrydale who hadworked for the compa ny s ince 1980. 6 In part, Cherrydale sought to facilitate broader

5oint Exhibit ("JX") 3 (the "APA").6ef. 's A ns. Br. ("DAB ") 1; T. Tr. 446 (Hoffr ichter).4


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access to i ts products by expandin g the terri tory covered by i ts sales reps into previouslyunserv iced a reas . ? Cherry formulated a recruit ing plan for Cherrydale in Nov ember 2007and suggeste d that "[g]et t ing within the KB netw ork, or the netw ork of some of the otherna t iona l compan ies , is how to ge t s tar ted." 8 In an e mai l accompa nying th is p lan , Cherryrecognized tha t such recrui tmen t e f for ts may be d i f f icul t because some of the sa les repswho then worked for KB would "have n on-competes" which Cherrydale would have todeal with. 9 After Cherrydale removed Cherry as a recruiter in December 2007,10Hoffr ichter continued Cherrydale 's effor ts to recruit sa les reps within the KB netwo rk.

In Nov ember 2007, W ill iamson, who had lef t KB in July 2006, joined Chenyda le.The next former KB em ployee to join Cherrydale wa s Southern. After working for KB inCa l i fornia for severa l years , 1 1 Southern con tac ted Hoff r ich ter in M ay 2007 to d iscussposs ib le oppor tun i t ies wi th Cherryda le , but no ser ious ne got ia t ions took place a t tha tt ime. 1 2 Southern aga in con tac ted Hof f r ichte r in ear ly 2008 and , af t e r some d i scuss ion,

7. Tr. 459, 560, 587 (H offrichter), 1114 (Kraft).8X 36.9d .10T. Tr. 1073-74 (Kra ft) ; Pl.'s Op. Br. ("POB") 5 n.1 ("For reason s unrela ted to hisrecruit ing efforts , Cherry was reliev ed of his daily responsibil i t ies as a Cherrydalerecru ite r in D ecember 2007 and w as a sked not to re turn to the compan y of f icesaroun d Ma rch 2008.").

11. Tr. 732-33 (Southe rn).12d. at 777-79. At approximately the same time, Southern commun icated with fourother fundraising companies about potential opportunit ies. I d .5


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accepted a proposal to become an in depen dent con tractor for Cherrydale on February 26,2008 (the "February 26 Proposal"). 1 3 Though Southern began actively working forCherrydale on March 25, 1 4 he remained an employee of KB until April 18, 2008.15During thi s t ime , Southern a ccessed doc umen ts on the KB repor t por ta l , inc lud ing theRan k ing Report 1 6 and the Order Status Report, 1 7 maintained a copy of his customeri n foima t ion l i s t, 1 8 contacted individuals on that list, 1 9 and assisted Cherrydale in itsrecruiting efforts.2

Soon after contacting Hoffrichter in early 2008, Southern began assistingCherrydale with its recruiting efforts and talking with Hoffrichter about "his KBfr iends." 2 1 On February 8, Southern called Fisher, who worked for KB in Phoenix,Arizona, and repeated a rumor to him to the effect that KB had been sold to Great

13 JX 51.14 JX 114.15A M arch 24 emai l f rom Hof f r ichte r to Kraf t an d Lights tone no ted that Southernhad not "officially given word to KB yet so he's still a bit under the radar."JX 64.16X 119; T. Tr. 208-09 (Solima ).17X 312; T. Tr. 817 (Southern).18. Tr. 769-70 (Southern).19

d .20X 53.21Id.On February 26, the same day Southern accepted employment withCherrydale , Hoffr ich ter to ld Rosen an d Kraf t tha t "[ I ] have a ca l l in to [Southern]to d iscuss h is KB fr iends ." Id .

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of the KB sa les reps . 3 1 Accord ing to a n em ai l , th i s updated l i s t represented " the best ofthe KB sa les force ." 3 2 Hoff richter used these sa les volume f igures, which he claims heob t a i ned f rom conve rsa t i ons w i th Wi l l iamson and Sou the rn , 3 3 desp i te recogniz ing thef igures a s KB's con f ident ial information.34

In i t i a l ly, Hoff r ich ter employed pa ss ive tac t ics to recruit KB employee s . 3 5 OnMa rch 10 , howev er , Rose n pointed ly to ld Hof f r ichte r that Cherrydale neede d to br ing"more sa lespeople to the sa les force asap" 3 6 and tha t i t was t ime to "get a ggress ive ."37Though Hoffr ich ter sen t a t lea s t two ma i l ings to KB sa les reps in M arch, 3 8 by mid-April,his recruiting efforts had become more active, including sending faxes and makingfollow-up telephone calls to multiple KB employees. 3 9 Spec if ica l ly , Hoffr ich ter faxed ale t ter to seven tee n KB employees on A pr il 18 , 2008 in forming them of "an oppor tun i ty

3 1ompare JX 54 with JX 59.32X 59.33. Tr. 599-600.34d. at 602-03.35Hoff r ichte r re fe rred to th i s pass ive recru it ing p lan in a February 8, 2008 emai l ,which noted tha t he would "not be ca l l ing anyon e" but would ins tead be "put t ingout the word for them to cal l me." JX 47.36X 58.37X 60.380( 55, 69.39X 77.

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with Cherrydale" for any sa les reps looking for "other options." 4 Accord ing to an emai lhe sen t to Kraf t an d Rosen , Hoffr ich ter p lann ed to send s imilar le t ters on Apr i l 19. 4 1 Inaddit ion, Hoffr ichter 's Apri l 18 le t ter invi ted in terested K B sales reps to a t tend a m eetingon Apri l 29 in Allentown to discuss employment opportuni t ies .42

Before th is meet ing took place , however , Grea t Amer ican obta ined a TemporaryRestra in in g Order ("TRO") aga inst Cherrydale an d thereaf ter i ts recruit ing effor ts largelyceased. 4 3 Amon g other th ings, the TRO enjoined C herrydale f rom sol ic it ing, rece iv ing,or us ing Grea t A mer ican or KB's conf iden t ia l in format ion or f rom moving forward wi thits April 29 meeting or otherwise soliciting or encouraging KB employees to useconfidentia l KB in formation or breach their employment contracts .

This comm un ica t ion ban i n t e r rup ted commun ica t ions be tween Cher ryda l e andJohnson who, after approaching Cherrydale in the spring of 2008 about potentialemployment opportunities, became the last of the former KB employees to joinCherrydale. 4 4 Johnson, whose territory within the KB network included counties inTennessee and Virginia, initially communicated directly with Hoffrichter. 4 5 Those

40. Tr. at 671 -72.4 1X 80.42X 77.43emp. Restraining Order (Apr. 28, 2008).44. Tr. 908-09 (Johnson ).45d. at 909.

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comm unicat ion s ceased, howeve r, af ter Hoffr ichter was ins tructed to cut off contact withany fonn er KB employees . 4 6 On May 2, 2008 despi te having n o promise of employmentwith Cherrydale or any other compan y, Johnson resigne d from KB, after having rejectedGrea t Am er ican ' s e f forts to s ign h im. 4 7 The TRO communicat ion ban was l i f t ed in mid-May 2008 4 8 and, sev eral days later, Cherrydale hired Johnson a s part of i ts sales team .49

In to ta l , Cherrydale ' s recrui t ing ef for ts resul ted in on ly four sa les represen ta t ivesjoining Cherrydale directly from KBSouthern, Fisher, Johnson, and SharonPassan t ino. 5 W hen Grea t Ame r ican execu ted the APA, n ine ty- f ive sa les reps worked forKB. 5 1 Of these , e ighty- two even tua l ly jo ined Grea t A mer ican . 5 2 Johnson an d Passan t inowere the only tw o of the rema ining thir teen sa les reps to join Cherrydale.

46d.; see also Prelim. Inj. Order ("Prelim. Inj.") 2(d) (May 16, 2008).47. Tr. 910-11.48ee supra note 43.49. Tr . 911-12. Johnson jo ined Chenyda le on June 5 , 2008. Id.50None o f Grea t A mer ican 's c l a ims impl ica t e em ploymen t nego t i a t ion s be tweenPassa nt ino an d Cherrydale or any ac t ions t aken by Passan t ino af te r she le f t KB.Unlike o ther KB employees , Passan t ino ' s employment con trac t d id no t con ta in aprovis ion preven t ing Passan t ino f rom se l ling to her f an ner KB a ccounts through

her new e mployer . Id. a t 378 (Bel l i) . Passan t ino le f t Cherrydale somet ime beforetrial. Id. at 651 (Hoffrichter).5 1his number does n ot include So uthern and Fisher , because by A pril 24, 2008, theday the A PA w as execute d, they both had lef t KB . T. Tr. 369 (Bell i) .52d. at 368-69.

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As noted above, during Cherrydale's recruiting efforts, Hoffrichter obtainedconfidentia l KB in foimation from W ill iamson and So uthern an d, to a lesser extent , Fisherand Johnson, which he used to aid his efforts. This information included KB'sConsul tan t Schedule , which Hoffr ichter used to targe t the "Bes t o f the Be s t" wi th in theKB sa le s fo rce , 5 3 and the Ra nking Re por t , which conta in ed sa les v o lume f igures of KBemployees.54

2.he Consultant ScheduleAfter Cherrydale hi red W i l li amson , Hof f r ichte r t a lked wi th her about KB sa lesreps she thought might be looking to change companies. 5 5 Williamson responded tothese conversations, in part, by giving Hoffrichter copies of KB's EmploymentContrac t , 5 6 Consultant Schedule, 5 7 and Independent Contractor Contract. 5 8 TheConsultant Schedule was a list of KB sales reps that Williamson printed from a KBcomputer system in l a te 2005 whi le she s t i l l was em ployed there . 5 9 In addition to thena mes of the sa les reps, the Consultan t Schedule conta ine d nam es of their spouses, home

53X 52.54ee infra note 62.55X 54, 80, 89; T. Tr. 599-600.56X 31.57. Tr. 1045-46 (Fishe r).58X 95.59. Tr. 955-56.

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addresses, te lephone num bers, hire dates , ema il addresses, fax numbers, and the na mes ofregiona l m anagers . 6 Hoffr ichter admitted that the Consultan t Schedule "accelerated" hisrecruiting efforts.61

3.he KB Ranking ReportHoffrichter also received a copy of the KB Ran king Report. This real- t ime Reportcontained a list of KB representatives ranked by volume of sales paid. 6 2 In the daysbefore Hoffr ichter circula ted his March 13 updated "Target Lis t of KB Reps" an d whileSouthern wa s d i scuss ing Cherrydale employmen t wi th "his KB f r iends"63 Southernaccess ed KB's repor t por ta l f ive t imes to exam ine the Ran king Report . 6 4 Addi t ional ly ,on April 23, Denise Morse, a KB sales representative who had inquired aboutemploym ent w i th Cherryda le , sen t H off r ichter a copy of the Ran king Repor t , 6 5 whichranked KB's sales reps by volume of sales paid as of April 13, 2008. 6 6 Cherrydale

60X 1.61T. Tr. 452-53, 522. The Con sul tan t Schedule a ccelera ted Hof frichter 's ef forts torecrui t f rom wi thin KB because he d id not have man y of the name s conta in ed inthe schedule before rece iv ing i t . Id. at 453.62X 2; T. Tr. 203 (Solima ), 1057-58 (Fisher).63X 53.64ccording to the access report, Southern accessed the Ra nking Report on M arch 3,

5, 7, 9, and 13. T. Tr. 208-09 (Solima); JX 119.65. Tr. 678-79 (Hoffrichter).66X 143. Hoffrichter received the report f rom Morse af ter respondin g "[s]ure" toher inquiry whether he wan ted her to sen d i t . T. Tr. 679. Hoffrichter denied e ver

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claime d to hav e disciplined Hoffr ichter for receipt and use of both the confide ntial sale svolume f igures conta ined in Hof f r ichte r 's updated Targe t Lis t an d the Ran king Report ,but the na ture and exten t of the discipline is unclear an d undocumen ted.67

4.B's Customer Contact Information and the Order Status ReportSouthern, Fisher, and Johnson each maintained customer contact lists atCherrydale that they had compiled while working at KB. 6 8 Typically, followingte rmina t ion of em ployment wi th KB, sa les reps rece ived le t ters remindin g them of the ircontractual obligations and asking that all confidential information, including "[a]llte r r itory contac t l i s t s ," be re turned to KB . 6 9 Southern, F i sher , and Johnson te s t i f ied thatthey mainta ined these l is ts because they did not consider continued possession of the KBcustomer l is ts while em ployed with Chenyda le improper.7

using the Apr i l 13 ve rs ion of the Rankin g Repor t rece ived f rom M orse to recrui tformer KB em ployees or for an y o ther reason . Id. at 680-81.67d. at 1128-29 (Kraft).68d. at 769-70 (Southe rn), 848-50 (Johnson), 1019-20 (Fisher).69JX 85 (Southern termina t ion le t ter from KB); see also JX 12 (Johnson terminat ionletter from KB noting that Johnson must "immediately return any and all of[KB's] t rade se cre t s , propr ie tary, and/or con f ident i a l informa t ion that i s in yourpossession or control.").70Southern sa id he main ta ined a cus tom er l is t on h is home co mputer because hecons idered i t h is in format ion . T. Tr . 769-70. Johnson s ta ted tha t he ma in ta ine d acus tomer l i s t on h is computer because "I fe l t tha t the in format ion tha t I had bui ltand a cc rued was m ine ." Id. at 847-48.

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After he le f t KB, Southern a lso downloaded a copy of a n O rder S ta tus Repor t.71This Repor t con ta ined a l i s t o f schools tha t Southern had worked w i th in tha t pa r t icularseason, included phone numbers and addresses, and listed the status of various KBorders . Southern t e s t i f i ed that he kep t the Report because " i t wa s an easy loca t ion forphone numbers and addresses, if I needed to enter those in a mailing or in a newagreement." 7 2 From the t ime Southern signe d the February 26 Proposal unti l he resignedfrom KB, Southern accessed the Report on the KB system at least twelve times.73Southern accessed n ot only hi s own Order Sta tus Report , bu t a l so that of Ha rold Zane ,another KB sales rep.74

5.herrydale's Actions After the Court's Issuance of the PreliminaryInjunctionOn Ma y 16, 2008, this Court issued a Prel iminary Injunction en join ing Cherrydale(1) f rom fur ther appropr ia t ing , us ing , or revea l ing a ny of Grea t A mer ican ' s conf iden t ia lcus tomer in format ion or o ther t rade secre t or proprie tary in format ion tha t i s n o t readi lyava i lab le through proper mean s an d (2) f rom a ss ign ing Fisher to work in any par t o f the

71d. at 817; JX 312.72d .73X 20.74JX 20 at pp. 41, 42, 49, 50. According to Great American's IT Director, EdSolima, Southern routinely accessed other KB sales reps' sales and customeri n format ion a f te r he agreed to jo in C herrydale , inc lud ing Zan e 's contac t l i s t andOrder Sta tus R eport and C orinne L il lbridge 's contact l is t . T. Tr. 231-32.

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terr i tory he worked in while employe d at KB fo r a period of one yea r. 7 5 This Order alsorequired Cherrydale to en sure that Hoffr ichter, W ill iamson , Southern, and Fisher did nott ake pa r t in sol ic i t ing, conta c t ing, recru i t ing, or hi r ing an y ind iv idual s who w orked forKB on April 24, 2008 and to return or destroy any documents containing GreatAmerican 's trade secrets an d other conf ident ial an d proprietary information.76

Following entry of the Preliminary Injunction, Cherrydale and certain of itsemployees took act ions that bear on Great Am erican 's cla ims.

Firs t, F isher sen t a form le t ter draf ted by Cherrydale ' s a t torneys to be tw een for tyand f i f ty of h is former KB cus tomers . 7 7 This "Abe Lincoln" le t ter , so-ca l led because thedraf t was a ddressed to Abe L incoln , expla ined to Fisher 's former KB cus tomers tha t hewould be unable to service their accounts because of the Preliminary Injunction andintroduced them to one of Cherrydale's sales reps, Lisa Conati, who would be "theCherrydale sales represe nta t ive . . . contacting [Fisher 's customers] and se rvic ing [ their]account." 7 8 In line with instructions Kraft gave to Fisher, Cherrydale also took others teps to t ran s i t ion F isher' s former accoun ts to Cona t i . 7 9 The two met together for two

75relim. Inj.76d.77X 1 01; T. Tr. 1061 (Fisher).78X 101.79raft wrote to Fisher that "Cherrydale will make arrangements to service theaccounts you s igned" an d informed him that " [Hof f r ichte r] and I w i l l coord inatewith you short ly to tran si t ion those accounts to an other Cherrydale representa t iv e,Lisa C ona t i ." JX 98.

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hours and Fisher gave Conati information concerning his past and prospective KBcustomers . 8 0 In an August 29, 2008 ema il to Fisher , Hoffr ichter indicated that C herrydaleemployed s imilar tact ics with regard to cus tomers formerly serviced by Johnson.81

Second, from M ay 3, the day af te r he res igned, unti l June 22, Johnson con tinued toacce ss h is former KB ema i l accoun t and forward cus tomer con ta ct in format ion to h ispe rsona l emai l accoun t . 8 2 The information Johnson forwarded to himself included adocument e nt i t l ed "Knoxvi l le Area Con tac t s , " which Johnson used to sol ic i t customerson Cherryda le 's beha l f , 83 an d an i nqu iry emai l sen t t o Johnson 's KB accoun t f rom anelementary school in the area assigned to him while at KB. 8 4 Johnson continued toaccess the email account despite a June 2 email from Kraft directing him not to useinformation gaine d from KB.85

Finally, as noted previously, Southern, Fisher, and Johnson have continued tomain tain l is ts of cus tomers whose accounts they serviced while employed with KB.86

80. Tr. 1022 (Fisher).81JX 117 ("[m]uch like you [Fisher], he [Johnson] is getting calls from formercus tomers tha t wan t to do bus iness . He i s te l l ing them the sam e scr ip t you use .[Senten ce redacted by Cherrydale] M uch l ike you are doing with Lisa Con at i .") .82X 15.83. Tr. 831-32.84ee JX 22, 102.85X 104.86ee supra Part I.B.4.

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Having recounted the events giving rise to this action, I now turn to certaindocumen ts that bear direct ly on Grea t American 's cla ims, including the KB Employm entCon tract , the KB Employee Han dbook, an d the APA.

6.B Employment Contract and Employee HandbookSouthern, Fi sher, and Johnson an d a l l bu t three of KB's sa les reps s igned a formKB employmen t con t r ac t ( the "Employmen t C on t r ac t ") when they jo ined KB . 8 7 TheEmploymen t Con t rac t con t a i n s s eve r a l c l auses r e levan t t o Grea t A mer ican 's t o r t iousi n te r fe rence c la ims, inc lud ing the fol lowing: (1) a n oncom pete c lause prevent ing sa lesreps f rom "engag[ ing] in or in any w ay ass is t [ ing] in any sa les or s imi lar re la ted work orserv ices for an y third-par ty fund-ra i s ing compan y, or any fund ra i s ing products of an ykind" in the i r ass igned T err itory during em ploymen t wi th KB an d for a per iod of oneyear after termination of employment, (2) a clause requiring the return of "all [KB]mater ia ls" inc luding "samples , ma nuals , cus tomer f i les , invoices , address f i les , suppl iesan d adver t is ing/promotion m ater ia l" as well as "any ma ter ia ls prepared by [the sa les rep]ut i liz ing any such [KB] mater ia ls , (3) a c lause s ta t ing tha t sa les reps "acknowledge andagree that customer-related information" received from KB is "confidential andproprie tary to [KB ]," (4) a c lause prohib it ing sa les reps f rom "us[ ing] an y informa t iondes igna ted in the Agreemen t as [KB] proper ty or as con f iden t ia l or proprie tary to [KB]for any purpose other than in furtherance of [ the sales rep's] respon sibil i t ies" in workin gfor KB, and (5) a clause requiring KB sales reps to "follow all [KB] policies and

87X 4; T . Tr. 270.17


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procedures, and to direct [ the sa les rep 's] full t ime an d best effo r ts to sel l and promo te theproducts of [KB ]."88

This las t c l ause impl ica tes the KB Em ployee Han dbook ( the "KB H an dbook" or"Handbook") , which conta ins expl ic it provis ions de ta i l ing KB pol ic ies an d procedures ,and requires employees to follow those provisions. 8 9 Amon g other things, the Han dbookconta ins provis ions : requiring employees to preserve the conf iden t ia l i ty of a l l KB tradesecre t s and con f ident i a l informa t ion, inc lud ing compen sat ion data , sa les an d customerl i s ts , and f inan c ia l informa t ion; 9 prohibi t ing employees f rom access in g personnel f i leswithout "a legitimate business reason"; 9 1 prohibiting employees from "us[ing] apassword, access[ing] a file, or retriev[ing] any stored communication withoutauthorization or for any purpose other than [KB]'s business"; 9 2 and requiring allemployee s to "return al l [KB] property immedia tely upon request or upon termin ation ofemployment."93

Con sis tent wi th the con f ident i a l ity pol ic ies conta ine d in the Ha ndbook, KB tookcer ta in s teps to ma inta in the secrecy of i t s propr ie tary informa t ion. For ins tan ce , sa les

88 JX 8, 9, 10, 11, 31.89 JX 24.90 Id. 105.91 Id. 202.92 Id. 701.93 Id. 803.

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reps could only access the KB report portalwhich held the Consultant Schedule,Ran king Report , an d Order Sta tus Reportby input ing user names a nd passw ords in totwo separa te log- in screens . 9 4 Remote access to the KB computer ne twork and KB em ai laccounts also required KB sales reps to input their user name and password. Solimates t i f ied tha t the KB data pro tec t ion sys tem an d pro tocols conformed to gene ra l prac t icein the IT field. 9 5 Additionally, when KB sales reps resigned, KB delivered to them at e rmina t ion of employm ent l e t t e r requir ing employees to con form the i r conduct to theterms of the Han dbook and Em ploymen t Contract , including those terms requiring returnof KB property an d information.

Notably lacking in either the Employment Contract or the KB Handbook,howev er , is a c la use or pol icy prohib it ing KB sales reps f rom so l ic it ing co-workers towork for another compan y. Though Great American con tends that such nonsol ic i t a t ionobligations exist and were breached by Southern, Fisher, and Johnson, 9 6 it has not

94X 13-13B ; T. Tr. 184.95

. Tr. 185-86.96Pl. 's Reply B r. ("PRB") 7 ("By hiring So uthern, Fisher and John son , Cherrydaletortiously interfered with Great American's contractual right to preclude: (i)Southern f rom sol ic i t ing hi s former KB co-w orkers and ( i i ) F isher and Johnso nf rom compet ing for customers in the ir former KB te rr itor ies a nd f rom sol ic i tingtheir former KB co-workers.").19


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identified any such clause in the Employment Contract, and the Court has not foundone. 9 7

7.elevant Terms of the APASeekin g to increase i ts sa les force through the addit ion of KB's sa les force, 9 8 GreatAm erican en tered in to the APA wi th KB on Apr i l 24, 2008. 9 9 In an effort to acquireKB's n in e ty-f ive sa les reps a nd the i r customer re la t ionships, Great American paid $9 .3mil l ion in exchan ge for , among o ther things , the fo l lowing KB asse ts : F irs t , a l l o f KB 'sin format ion on pas t , presen t , and poten t ia l cus tomers , including conta ct in format ion ,fundrai s ing nee ds, cost and ma rgins on products sold , account d i spu tes an d resolu tion,an d the l ikel ihood of custom ers conducting s imilar fundraise rs in the future; m second, allassignable rights under nondisclosure, nonsolicitation, and noncompetitionagreements ; 1 1 third, a l l r ights , cla ims, an d causes o f act ion for an y past , present or futureinfringement of KB's confidential or proprietary information, including intellectualproperty rights; 1 0 2 four th, KB's bus iness records , market ing a nd pay plan s , and persona l

97The on ly provis ion in the KB Han dbook men t ion ing so l ic i ta t ion mere ly prohibi tsemployees from selling merchandise or memberships to or soliciting funds ors ignatures from a ny co-wo rker while a t work. JX 24 706.98. Tr. 60 (Be dford).99 See supra note 5.10 0 APA 2.2(g).1 0 1 Id. 2.2(f).10 2 Id. 2.2(j).

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and bus iness in format ion on the sa les reps; 1 0 3 an d fif th, al l r ights in an d goodwill ar is ingfrom KB 's customer re la t ionships. ' 4

C .rocedural HistoryOn A pr il 28 , 2008, Grea t Am er ican comme nced th is ac t ion in Delaw are seekinginjunctive relief and monetary damages for allegedly unlawful acts committed byCherrydale an d i t s agen ts . I gran ted G rea t Ame r ican ' s mot ion for a TRO on A pr il 30. 1 0 50 6 Beginn ing onJanua ry 9, 2009, I conducted a s ix-day tr ial on al l of Great American 's rema ining claimsagainst Cherrydale.

On Ma rch 3 , 2009, Cherrydale a ss igned i t s asse ts for the benef i t o f c redi tors .107This ass ignmen t gave r i se to a number of col l a te ra l i ssues an d temporar i ly dera i l ed thepost- tr ial proceedin gs in this case. Nev ertheless, af ter some delay, the parties completedtheir post- tr ia l br ief ing, and I heard oral a rgument on September 11.

This Opin ion ref lec ts my pos t- t r ia l f indings of fac t an d conc lus ions of law in th ismatter.

103d. 2.2(i).10 4d. 2.1, 2.2(1).105ee supra notes 43-44 and accompan ying text .10 6ee supra Part I.B.5.10 7ee In re Eladyrrehc, LL C, No. 4403-VC P (Del. Ch. Oct. 30, 2009) (Petition ).

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When examining conflicts of law issues, Delaware courts adhere to theResta temen t (Second) of Conf l ic ts and gene ra l ly apply the law of the s ta te wi th the mostsignif ican t relat ionship to the parties and the occurrence givin g r ise to the suit . 1 1 0 In thiscase , sev era l s t a te s , to v arying degrees , have a re la t ionship wi th th is d i spu te , inc lud ingArizona, California , De lawa re, I l l inois , and Tenn essee. Both par t ies recogn ize, howev er,that the re leva nt laws of these s ta tes are "general ly substant ia l ly the same as they rela te tothe issues in this case." 1 1 1 Each state recognizes the same basic elements for tortiousin ter ference wi th contrac tua l re la t ions and prospec t ive contrac tua l re la t ions , 1 1 2 and eachhas enacted the Uniform Trade Secrets Act with no relevant deviations. 1 1 3 The onlypoten t ia l d i f ference s in laws re la te to (1) the enforceabi l i ty of noncom pete c lauses inemployment con trac ts they are vo id under Ca l i forn ia law subjec t to cer ta in except ions

110See Ubiquitel Inc. v. Sprint Corp., 2005 WL 3533697, a t *3 (De l . Ch. D ec. 14 ,2005); Clinton v. Enter. Rent-A -Car Co., 977 A .2d 892, 895 (D el . 2009) (ci t ingTravelers Indem. Co. v. Lake, 594 A.2d 38, 46-47 (D el . 1991)); Postorivo v. AGPaintball Holdings, Inc., 2008 WL 343856, at *4 n.10 (Del. Ch. Feb. 7, 2008)(cit ing RESTATEMENT (SECOND) OF CONFLICTS OF LAWS 145(1) (1997) (notin gthe seven broad policy considerat ions that can inform choice of law decis ions)).DAB 22; POB 28-29.

112See, e.g., Pasco Indus., Inc. v. Talco Recycling, Inc., 985 P.2d 535, 547 (Ariz. Ct.App. 1998); Farmers Ins. Exchange v. State of Cal., 175 Ca l. App. 3d 494, 506(Ca l . Ct . App. 1985); Estate of Carpenter v. Dinneen, 2007 WL 2813784, a t *5(De l . Ch. Apr. 11, 2007); Bolger v. Danley Lumber Co., 395 N.E.2d 1066, 1068(Il l . App . Ct. 1979); Campbell v. Matlock, 749 S.W .2d 748, 751 (Term. Ct. App.1987).

11 3ee Ariz. Rev. Stat. Ann. 44-401 to 44-407; Cal. Civ. Code 3426.1-3426.11;6 Del. C. 2001-2009; 765 Ill. Comp. Stat. 1065/1-1065/9; T enn . Code A nn . 47-25-1701 to 47-25-1709.23


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but general ly enforcea b le in the other in te res ted s t a tes 1 1 4 an d (2) the ass ign ab i l i ty ofnoncompete agreemen ts . I 1 5 Accordingly, because the laws of the seve ral in terested s ta tesre levan t to the i ssues in th i s case a l l would produce the sam e deci s ion n o ma t te r whichstate's law is applied, there is no real conflict and a choice of law analysis would besuperfluous. I 1 6 Thus, I ana lyze Grea t Am er ican 's c la ims under De law are law.B .id Cherrydale Tortiously Interfere with KB's Employment Contract andProspective Contractual Relations with Former KB Customers?In this section, I discuss Great American's tortious interference claims and

conclude that Cherrydale did tort iously interfere with KB's Employme nt Con tracts withSouthern, Fisher, and Johnson, causing injury to Great American. The amount ofdam ages, i f any, ar is ing from Chenydale 's in terference is addresse d in Par t II.D.2 below.

Delaware courts recognize a cause of action for tortious interference withcontractual relations. The elements for this tort are well established and require a

114S ee Ca l. Bus. & Prof . Code 1 6600 ("Except as prov ided in this chapter, everycontract by which anyone is res tra ined from en gaging in a la wful profess ion, trade,or business of any kind is to that extent void."); see also Edwards v. ArthurA ndersen LL P, 189 P.3d 285 (Cal . 2008). Because Grea t Amer ican does no t seekto enforce the n oncompete a greement of Southern , who res ides in Cal i forn ia , thisdis t inct ion is not relevan t to the dispute before me.11 5or the most part, this issue affects only the assignability of Johnson'snoncompete agreemen t and i s addressed infra Part II.B.2.116See, e.g., Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 838 n.20 (1985);

Kronenberg v. Katz, 2004 WL 5366649, at *16 (Del. Ch. 2004) ("Where thechoice of l aw would no t in f luen ce the outcome, the cour t may av oid makin g achoice."); ABB Flak, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, P.A., 1998W L 4371 37, a t *5 (De l . Super . June 10 , 1998) ("When a choice of l aw a na lysi sdoes not impact the outcome of the court's decision, no choice of law analysisneed be made.") , aff'd, 731 A.2d 811 (D el. 1999).

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showing of "(1) a valid contra ct, (2) about which the defen dan ts have kn owledge , (3) anintentional act by defendants that is a significant factor in causing the breach of the[contract], (4) done w ithout just i f ica t ion, an d (5) which causes in jury.' , 1 1 7 Thus, for eac halleged act of interference by Cherrydale, Great American must show that a validcontractual re la t ionship exis ted, that Cherrydale knew of an d unjust if iably in terfered withthat contract , inducing i ts breach, and that G reat American suffered damages a s a result .

De lawa re cour ts a l so recognize a cause of a ct ion for tort ious in ter feren ce wi thprospective contractual relations. Conceptually similar to tortious interference withcontract, this tort requires (a) a reasonable probability of a business opportunity orprospec t ive contrac tua l re la t ionship, (b) in ten t iona l in ter ference by a defendan t wi th tha topportunity, (c) proximate cause, and (d) damages. 1 1 8 Furthermore, all of theserequirements m ust be considered in l ight of a defen dan t 's privilege to compete or protecthis business interests in a lawful man ner.119

117Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood, 752 A.2d1175, 1182 (Del. Ch. 1999); see also A ll Pro Maids, Inc. v. Layton, 2004WL 1878784, at *6 (Del. Ch. Aug. 9, 2004), aff'd, 880 A.2d 1047 (D el. 2005);Estate of Carpenter, 2007 WL 2813784, a t *5 (c i t ing AeroGlobal Capital Mgmt.,LLC v. Cirrus Indus., 871 A .2d 428, 437 (D el . 2005); Irwin & Leighton, Inc. v.W .M. A nderson Co., 532 A.2d 983, 992 (De l. Ch. 1987) ("The critical question . . .[ is whether the party acted] so a s to bring abo ut . .. [the] breach an d, if so, was i tjust if ied by legit imate pursuit of i ts own in terest in so act ing.")).

118eBonaventura v. Nationwide Mut. Ins. Co., 428 A.2d 1151, 1153 (De l. 1981).11 9d.25


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prospective contractual re la t ions with former KB customers by a l lowing and encouragingSouthern , Fisher , an d Johnson to re ta in KB cus tom er in format ion an d use i t to fos terCherrydale 's sales ef forts .

Acknowledging that "cer ta in Cherrydale representa t ives did not behave perfect ly"and "made judgments tha t in h inds ight may have been ques t ionable or eve n w rong,"121Cherrydale responds to Grea t Amer ican ' s c la ims by arguing tha t Grea t Amer ican d id n o tes tabl ish tor t ious in ter ference wi th an y contrac t because i t d id no t show tha t the re levan tEmploymen t Contrac ts were a ss ignable , tha t Cherrydale wrongful ly in ter fered wi th anyemployment or customer contracts, or that any of those contracts were breached.Cherrydale a lso argues tha t Grea t Am er ican ' s tort ious in ter ference c la ims have n o lega lbas is because Delaware "does not recogn ize an ac t ion for tor tious in te rfe rence wi th an a t -wil l employment re la t ionship. 1 2 2

1.ortious Interference with Contract in an "At W ill Em ploymentRelationshipI address Cherrydale 's las t a rgument f i r s t . Cherrydale suppor ts i t s con ten t ion tha t

Delaware does not recognize an action for tortious interference with an at-willemployment relationship by quoting Triton Construction. 1 2 3hat case involved an

Consequent ly , any c la im based on Cherrydale 's supposed in ter ference w i th Grea tAmerican 's potent ia l contractual re la t ions with Green and W alker fa i ls .

12 1AB 2.122riton Constr. Co., 2009 WL 1 387115, at *17.12 3d.27


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electr ical worker moonlighting for the defendant electr ical company after hours. 1 2 4 Theelectrical worker in Triton Construction neve r had an employmen t con t r ac t wi th thepla in t i f f e lec tr ica l con trac tor an d, thus , rema ined a n "a t -wi l l" employee who wa s underno con tractua l obl iga t ion to rema in wi th or work so le ly for the ben ef i t o f the p la in t i f fe lec t rica l compan y. 1 2 5 Because the em ployee l acked a va l id employmen t con t r ac t , thecourt in Triton Construction found that the plaintiff electrical contractor could notmaintain a c laim for tort ious interference with contract .126

The fac t tha t De law are "does not recogn ize an ac t ion for tor t ious in te r fe rence wi than a t-wil l employment re la t ionship" 1 2 7 in such a s i tuat ion, howev er, does no t provide a nysupport for Cherrydale 's impl ied propos i t ion tha t the "a t -wi l l" na ture of a n employmen tre la t ionship automatical ly vi t ia tes con tractual obligat ions ar is ing from a val idly executedemployment contract. To the contrary, claims for tortious interference with contractapply just as readily to an "at-will" employee who has executed a valid employmentcontrac t as they do to an employee contrac tua l ly obl iga ted to remain w i th a company fora spe c i f ied per iod of t ime. Ev en though Southern , F isher , Johnson, a nd o ther sa les repsat KB had no expectation with regard to a specific "length of employment or [the

124d. at *17-18.12 5d. at *17-18, 26.126d .127d. at *17.

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requi remen t of ] grounds for t e rmina t ion," 1 2 8 each of these sales reps did enter into abind ing con t rac tual re la t ionship wi th KB wi th which Cherrydale could hav e tor t iouslyin terfered. Thus, I f ind Cherrydale 's asser t ion in this regard without meri t .

2.ssignability of Restrictive Covenants in an E mp loyment ContractBefore turn ing to the va l id ity of Grea t A mer ican ' s c la ims of tor t ious in ter ferencewith KB's Employme nt Con tracts wi th Southern , Johnson , and Fisher , I next addresswhether the res t ric t ive cov enan ts con ta ined in those Employment C ontrac ts were va l id lyassigned to Great American fol lowing execution of the APA.The impor t o f tha t ques t ion as to Southern and Fisher 's Employmen t Contrac ts i s

dimini shed because the bu lk of C herrydale ' s a l l eged ly tor t ious conduct involv in g thoseindividuals occurred before the execution of the APA. 1 2 9 Any claims based on thatconduct thus accrued before Great American purchased KB's assets. This is relevantbecause under Section 2.1 of the APA, Great Am erican purchased from KB :

[A]ll of the right, title, and interest of [KB] in and to all ofthe assets, properties, and rights of [KB] tha t are used orusable in the opera t ion of the Business of eve ry kind, na ture ,type, and description, real, persona l, an d mixed, tangible an dintangible, wherever located, . . . , whether known orunknown, fixed or unfixed, or otherwise, whether or notspecif ically referred to in this Agreeme nt an d whether or notref lected on the books an d records of [KB]. I 3 0

128oley v. Interactive Data Corp., 765 P.2d 373, 385 (Cal. 1988); see also Haney v.Laub, 312 A.2d 330, 332 (De l. Super. 1973).12 9ee supra Part I.B.I.13 0PA 2.1 (emphasis added).29


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Through this c lause , KB broadly ass igne d to G rea t Am er ican a l l o f i t s r ights , inc ludingthe r ight to pursue causes of a c t ion for tor t ious in te r fe rence wi th Southern a nd F isher' scontrac ts wi th KB tha t accrued before execut ion of the APA. Conse quent ly , for ac t ionsthat occurred before that t ime, Cherrydale 's ass ignabil i ty argument has n o me ri t .

But , the ass igna bi l ity of res t r ic t ive c la uses con ta ined in em ploymen t con tractsdoes a f fec t Grea t Am er ican 's c la ims of tor tious in ter ference wi th Johnson 's noncompeteagreemen t . The Cour t must de te iine, therefore, whether res trict ive coven ants con ta inedin an employment agreement lacking an assignability clause are enforceable by asuccessor company that has purchased substan t ia l ly a l l of the or iginal em ployer 's assets .

In large m easure , th is i s an issue of f i r s t impress ion . In suppor t o f i t s propos i t iontha t "employmen t con t rac t s a r e n on -a s s ignab le" i n D e l aware , 1 3 1 Chen-ydale c i t e s twocases: Trinity Transportation from the Court of Chancery 1 3 2 and Hess from thePennsylvan ia Supreme Cour t . 1 3 3 Con trary to Cherryda le 's con ten t ions , howev er , Trinitydoes not reflect Delaware's stance on this issue. As Great American correctly notes,"while the Trinity case w as heard in a De la ware cour t , i t d id not inv olve appl ica t ion ofDelaw are law"; ins tead, the cour t applied Mary land law . 1 3 4 Furthermore, Hess relied onthe court's decision in Trinity when i t l i s ted Delaw are am ong the jur isd ic t ions denying

131AB 23.13 2rinity Trans. Inc. v. Ryan, 1986 W L 11111 (Del . Ch. Oct . 1, 1986).13 3ess v. Gebhard & Co., 808 A.2d 912 (Pa . 2002).13 4RB 5 (cit ing Trinity Trans. Inc., 1986 WL 11111, at *1).

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the ass ignab i l ity of res t ric t ive cov ena nt s absen t an ass igna b i li ty c lause . 1 3 5 As a result,Hess provides no a ddi t ional ins ight as to the l ikely treatmen t of this issue in D elawa re.136

One of the few cases in Delaware to address whether employment contractsconta in ing res t r ic t ive covenan ts are ass ignable to the new owne r in the even t o f a sa le ofthe business is People's Security Life Insurance Co. v. Fletcher. 1 3 7Yet, even in this case,the court did l it t le more than no te that whether such cove na nts are ass ign able depends, inpar t , "on the s ign i f icance of an y changes in the bus iness a f ter the ass ignmen t ." 1 3 8 Whi lethe People's Security decis ion thus implic i tly suggest s that a business a ss ignee m ay beable to enforce a res tr ict ive covena nt in an employment agreeme nt absent an ass igna bil ityprovis ion, more an alys is is nece ssary.

An e f fec t ive a ss ignme nt of a co nt rac t r ight requi res that the owne r of that r ight"manifes t h is in ten t ion to ma ke a presen t t ransfer o f the r ight wi thout any fur ther ac t ionby him or by the obligor." 1 3 9 Gen eral ly , cont rac tual r ights may be ass igned un less thatass ignm en t is precluded by con tract , is prohibi ted by publ ic pol icy, or mate rial ly al ters

13 5ee Hess, 808 A.2d at 919 n .4.136Hess he ld tha t , under Pen nsy lvan i a l aw, a r e s t r ic t i ve coven an t no t t o com pe te ,con ta ined in an employment agreemen t , i s not a ss ignab le to a purchas ing businessent i ty in the absen ce of a spec i f ic ass ign ab i l i ty prov is ion in the coven an t , i f thecovenant is included in a sale of assets. Id. at 917-20 (not ing that restrict ivecovenan ts are no t f avored in Penn sy lvan ia) .13 7988 W L 26791, at *3 (De l . Ch. Ma r. 16, 1988).13 8d. at *3.139 Baxter Pharm. Prods., Inc. v. ESI Lederle Inc., 1999 WL 160148, a t *5 n.16 (Del.Ch. Ma r. 11, 1999) (ci t ing RESTATEMENT (SECOND) OF CONTRACTS 317(1)).

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the duties of the obligor. 1 4 While personal service contracts usually may not beassigned, 1 4 1 noncom pete agreemen ts and o ther res t r ic t ive covena n ts exis t for the benefitof the business an d not the individual part ies. Thus, the business, whether as ass ignee orassignor, should enjoy that benefit by having the power to enforce such restrictivecovenan ts . 1 4 2

140RES TA TEM EN T (S ECO N D) O F CO N TRA CTS 317(2) (1981); see also Grynberg v .Burke, 1981 W L 15118, at *1 (D el. Ch. May 20, 1981) ("The r ight of ei ther partyto the contract to its performance may be assigned, unless such assignmentchanges the obligor 's posi t ion to his detr iment or in creases his burdens.").141See Grynberg, 1981 WL 15118, at *1 ("The general rule is that a contract noti nvo lv ing persona l trus t an d conf idence , an d not be ing for persona l se rv ices , i sass ignable in the absen ce of lan guage to the contrary.").142Many jurisdictions have examined whether noncompete and other restrictivecovena n ts can be ass igned absen t a spec i f ic ass ignment provis ion and have comedown on both s ides of the issue. The split of authori ty is such, in fa ct , that there iseven a d i f fe rence of op in ion a s to which posi t ion represen t s the major ity v iew.Compare 6 WILLISTON ON CONTRACTS 13:13 (4th ed. 1995) ("A m ajori ty ofcour t s permi t the successor to enforce the employee 's res t r ic t ive coven an t as a nass ignee of the or ig ina l cove nan tee"), with Hess, 808 A.2d at 918 (noting that " themajor i ty of [s ta tes tha t have cons idered the ass ignabi l i ty of non-compet i t ion a ndnond i sc lo sure covena n t s ] have con c luded tha t the r e s t ri c t ive covena n t s a r e no tassignable").

Those that favor making noncompetition covenants unassignable absent theemployee 's express consen t general ly re ly on the theory that such covena nt s a repersona l in n a ture and, consequent ly , cann ot be ass igned wi thout the employee ' spermission. S ee, e.g., Traff ic Control S erv s., Inc. v . U nited R entals N w., Inc., 8 7P.3d 1054, 1057-58 (Nev . 2004) ("W e agree w ith those jurisdictions holding thatnoncompet i t ion coven an ts are persona l in n a ture and, therefore , unass ignable as amat ter o f law , absen t the employee ' s express consen t .") ; H ess v. Gebhard & Co.,808 A .2d 912, 922 (Pa. 2002); but see J.C. Ehrlich Co. v. Martin, 979 A.2d 862,866 (Pa. Super. Ct. 2009) (distinguishing He s s and a l lowing a s s ignmen t o f anon compe t e agreemen t f o l low ing execu t ion o f a s t ock pu rchase agreemen t tha teffect ively consol idated the two companies) .

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Cherrydale has not shown any reason why reasonable restrictive covenants inemployment con trac ts should not be genera l ly ass ignab le and en forceab le by an a ss igneecompet ing in the same indus try as the ass ignor . I 4 3 I hold, therefore, that absen t specif iclanguage prohibi ting ass ignment , non compete coven an ts , even though part o f a persona lservice contrac t , remain en forceable by an ass ignee w hen t ransferred to the ass ignee a spart of a sa le or transfer of business assets regardless of whether the employmen t contractcontains a clause expressly authorizing such assignability, so long as the assigneeenga ges in the same business as the assignor.144

Conversely, jurisdictions that favor assignability of noncompete agreementsabsen t speci f ic a ss ignab il i ty prov is ions ten d to p lace noncompet i t ion coven an ts inthe same category as other contractual rights. Equifax Servs., Inc. v. Hitz, 9 0 5F.2d 1355, 1361 (10th Cir. 1990) (applying Kansas law) ("Although anemployee's duty to perform under an employment contract generally is notdelegable . . . the right to enforce a covenant not to compete generally isassignable in connection with the sale of a business."); Safelite Glass Corp. v.Fuller, 807 P.2d 677, 683 (Kan. Ct. App. 1991); Kegel v. Tillotson, 2009 W L3486739, at *2 (Ky. Ct. A pp. Oct. 30, 2009) (cit ing Managed Health Care Assoc.,Inc. v. Kethan, 209 F.3d 923 , 929 (6th Cir. 2000)); J.H. Renarde, Inc. v. Sims, 7 1 1A.2d 410, 412-14 (N.J . Ch. 1998) (as a m at ter o f law, non compet i t ion coven an tsmay be freely assigned in an asset sale like any other contractual right in theabsence of some express contractual prohibition); see also R E S T A T E M E N T(SECOND) OF CONTRACTS 317 (1981).

14 3ee Caldwell Flexible Staffing, Inc. v. Mays, 1976 W L 171 6, a t *2-3 (De l . Ch.Nov . 29, 1976).144Additionally, I note that to the extent Tennessee law may govern Johnson'sEmployment Contract, it appears that Tennessee law also recognizes that ares t ric t ive covena n t m ay be ass igned and t r ans fer red pursuan t to an asse t purchaseagreement. Packers Supply Co. v. Weber, 2008 WL 1726103, a t *7 (Tenn. Ct .App. Apr. 14, 2008) (cit ing Bradford & Carson v. Montgomery Furniture Co., 9 2S.W. 1104 (Tenn. 1906) (holding that contracts containing covenants not to

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The case for ass igna bil i ty of the nonc ompete a greemen t is par t icular ly s trong herebecause the terms of the APA directly address the assignability of the contractualcovena n ts con ta ine d in the employment con trac ts o f former KB sa les reps . Spec i f ica l ly ,the APA inc ludes am ong the asse ts purchased by Grea t A mer ican "a l l ass igna ble r ightsunder nondisclosure agreements, nonsolicitation agreements, and noncompetitionagreeme nts en tered into with any part ies that relate to" KB's business .145

Hav ing a ddressed Cherrydale 's argumen ts wi th respect to the "a t -wi l l " na ture ofemployment between KB and its former sales reps as well as the assignability ofnoncompete obligations, I now turn to the elements of Great American's tortiousin terference claim as to Southern, Fisher, and Johnson.

3.he Existence of a Valid ContractSouthern and Fisher s igned Employment C ontrac ts wi th KB on M ay 8 , 2001.146Johnson s igned his on D ecember 14 , 2001. 1 4 7 The re levant t e rms of these cont rac t s arecompete are assignable absent specific language in the covenants prohibitingassignment)).

14 5PA 2.2(f). Cherrydale contends that the phrase "all assignable rights" in 2 .2( f ) ind icates that cer ta in of these agreeme nts are som ehow no t ass igna b le ,because 8.9 of the APA s ta tes tha t the APA does not "cons t i tu te an agreemen t toass ign a ny C ontrac t or an y c la im, r ight , or benef i t a r is ing thereunder or resul t ingthere f rom, if a consen t has n ot been ob ta ined or i f an a t tempted ass ignmen t thereofwould be inef f ect ive ." Id. 8.9. I read 8 .9 , however , as prec luding a ss ignmen tof a c la im, r ight , or benef i t under a con trac t where consen t has no t been rece ivedand applicable state or federal law precludes assignment absent consent. Asexplained a bove, that is not the s i tuat ion here.

14 6X 8-9. In Southern 's case, this contract replaced a M ay 22, 1998 contract .14 7X 10.34


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noted a bove in Pa r t I.B.6. Cherryda le does no t con te nd tha t any of these con tracts ortheir respective clauses, with the exception of the noncompete clause as it applies toSouthern, are invalid!" Thus, the first element of this tortious interference claim issat is f ied.

4.herrydale's Knowledge of KB's Employment ContractThe nex t quest ion i s w he ther Cherrydale knew of the t e rms of S outhern, F i sher,an d Johnson 's Employmen t Contracts . Before Cherryda le began i t s recruit ing e f for t s , Cherry infoned Kraf t tha t a la rge number of K B's sa les reps would "have noncom petes ,which [Cherrydale] will hav e to de al w ith." 1 4 9 This information put Cherrydale on noticeof the existence of KB's employment contracts and at least one of the restrictivecoven ants l ikely to be in those contracts .

Addit iona l ly, on No vem ber 20, 2007, Hoff r ichter and Cherrydale received a fa xedcopy of KB's Employment Contrac t f rom W il l iamson . 1 5 This copy of the Em ploymentContract conforms to the one signed by Southern, Fisher, and Johnson in 2001.Moreover, according to an addendum to Southern's February 26 Proposal, Southernprovided Cherrydale wi th a copy of h is KB Em ployment Contrac t . I 5 1 Similar ly, Johnson

148Regard ing Southern 's noncompete c lause , Great American t ac i t ly acknowledgesthat it would be unenforceable under California law and does not assert thatSouthern breached any n oncompet i t ion ar rangement . POB 38 n .21; see also supranote 114; T. Tr. 380 (Belli).

149X 36.15 0 JX 31; T. Tr. 654 (Hoffrichter), 952 (William son ).151 JX 51, 113.35


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forwarded a copy of h is KB termina t ion le t ter to Cherrydale soon a f ter he rece ived it.152This letter reminded Johnson of his obligations under the Employment Contract andindica ted se vera l th ings Johnson w as required to do to comply wi th tha t con t ract .153Cherryda le 's rece ip t o f these documen ts prove s i t kne w of the exis tence an d ma ter ia lterms of the KB Em ployment Con tracts s igned by Southern, Fisher , and Johnson.5.herrydale's Intentional Actions Leading to Breach of the KB EmploymentContractsTurning to the th ird e leme nt of G rea t Am er ican ' s tort ious in ter ference c la im, theCour t must de termine whether Cherrydale in ten t iona l ly ac ted in a w ay tha t s ign i f ican t lycontributed to causing Southern, Fisher, and Johnson to breach the terms of theirEmployment Con trac ts . Due to the fac t-spec if ic na ture of th is e lement , I address ea ch ofthese individuals separate ly.

a.outhernSouthern a ccepted Cherrydale 's proposa l to become an independen t con trac tor on

February 26, 2008 and began actively working for Cherrydale on March 25. Heremained an employee of KB, however, until April 18, 2008. Hoffrichter, Kraft, andLightstone a l l knew tha t Southern remained a K B employee eve n a f te r he began work ingfor C herrydale . 1 5 4 Indeed, under the February 26 Proposal, Cherrydale agreed to

15 2 T. Tr. 844-45.153 JX 12.15 4 S ee supra note 15.

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indemnify Southern if he was sued for breaches of the noncompete clause in hisEmployment Agreement. /55

Between the t ime he s igned the February 26 Proposal an d the t ime he ended hisemploymen t a t KB, Southern d id severa l th ings tha t v io la ted h is Employmen t Contrac t .First, he began actively assisting Cherrydale's recruiting efforts and talking withHoffrichter about "his KB fr iends." 1 5 6 Second, Southern accessed copies of the Ran kingReport on KB's report portal five times. 1 5 7 Third, Southern maintained copies ofin format ion per ta in in g to KB cus tomers he serviced whi le employed wi th KB and usedthat informa tion in his work for Cherrydale. 1 5 8 Fourth, Southern began to sel l Cherrydaleproducts and services before he res igned f rom KB . 1 5 9 Finally, Southern accessed hisOrder S ta tus Repor t an d o ther repor ts on the KB repor t por ta l numerous t imes an d used

15 5X 51 at C D0000163.15 6X 53.157JX 119. Shortly after Southern 's f inal revie w of the Rankin g Report on March 13,Hoff r ichte r c ircu la ted an updated "Targe t Lis t of K B R eps" ident i fy ing, for thef irs t t ime, the sa les vo lumes of indiv idual KB sales reps. JX 59.158

X 28. Af ter he jo ined Cherrydale , Southern con tac ted ma ny of the cus tomers heserviced while employed at KB. JX 29.159In a M arch 24, 2008 ema i l be tween H of f r ichte r an d Kraf t , Hof f r ichte r repor tedthat "[Southern] is doing a m ailer this week in the Sac ramen to area w ith our s tuff ,an d i s present ing [Cherrydale ] to one of hi s largest accounts f i rs t of ne x t week."JX 64.

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the information con ta ined in the Order Sta tus Report to send out Cherrydale mail ings andfacilitate contract signings.16

Through these ac t ions, Southern breached num erous te rms of hi s Employmen tCon tract. What is releva nt here, howev er, is that Cherrydale con tr ibuted signif icantly tocausing these breaches when, through the acts of its agent Hoffrichter, 1 6 1 Cherrydaleencouraged Southern to remain a KB employee for several weeks before ending hisemployment and encouraged him in his surreptitious activities during that time.162Cherrydale ' s encouragemen t of Southern 's breach of h is Employment Con trac t a lso can

160X 20, 312; T. Tr. 817 (Southern ).161ee TD Ameritrade, Inc. v. McLaughlin, Piven, Vogel Secs., Inc., 953 A.2d 726,735 (Del . Ch. 2008) ("The seminal ca se in De law are on v icar ious l iab i l ity i s the1962 dec is ion of the Supreme Cour t in Draper v. Olivere Paving & Construction

Co. There , the Cour t he ld tha t an employer i s l i ab le on ly when those tor t s a recommitted by the servant within the scope of his employment. The Courtelaborated, explaining that it would impose liability upon the master for hisservan t ' s in ten ded tor t ious harm i f the act wa s no t unexpec table in v iew o f theduties of the servan t.") (c it ing Draper v. Olivere Paving & Constr. Co., 181 A.2d565 (Del . 1962) (interna l quotat ion ma rks omit ted)).Kraft and Lightstone both knew of and encouraged Hoffrichter's recruitingactivities, all of which took place in the scope of Hoffrichter's employment asCherrydale's National Sales Manager. In fact, as indicated supra notes 35-37,Rosen ac t ive ly fos tered Hoffr ich ter 's recrui ting tac t ics by te l l ing h im to ge t m orepeople in to the sa les fo rce, "asap," and to get a ggressive. Hoffr ichter responded toRosen's email stating that "Ill [sic] take that as a green light, with [Kraft]'s,[Lightstone]'s and your guidance and Ok on anything I do." JX 60. NeitherRosen, Kraft, nor Lightstone corrected Hoffrichter's understanding. Thus,Cherrydale is vicar iously l iable for Hoffr ichter 's a ct ions.

162X 59, 64, 116, 311.38


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be seen in the fact that , upon s igning the February 26 Proposal , Southern becam e el igiblefor a referral bonus for an y sales rep that he ent iced to join C herrydale from KB .I63

Cherrydale's intentional encouragement of Southern's "under the [KB] radar"ac t ions and of h is main ta in ing his KB cus tomer l i s t and con tac t ing ind iv idua ls on tha t l i s thelped cause Southern to breach sev era l c l auses in hi s cont rac t . Those c lauses inc ludethe coven an ts he ma de " to fo l low a l l [KB] pol ic ies an d procedures ," " to d irec t [h is] fu l ltime and best efforts to sell and promote the products of [KB] in [his assigned]Terr i tory ," to "re turn promptly upon termina t ion an y an d a l l Compa ny-owne d mate r ia lssuch as . . . customer f i les, invoice s and a ddress f i les" as well as "a ny ma terials preparedby [ the employee] u t il i z ing an y such Compan y-own ed mate r ia l s ," and to not "use an yin format ion des igna ted" as conf iden t ia l or proprie tary "for an y purpose o ther than infur theranc e" of h is respons ib i l i ti es to KB . 1 6 4 Therefore, Cherrydale's intentional actscontr ibuted to Southern 's breach of his KB Employmen t Contract .

b.isherLike Southern, F i sher breached his Employmen t Cont rac t in man y ways. F i rs t,Fisher 's employme nt with Cherrydale ove rlapped with his work at KB be cause he joinedT. Tr. 752.See JX 8. As noted supra Part I.B.6, employees, including Southern,ackn owledged in the Employment Con t rac t that "customer-re la ted informat ion"provided by the Company, including "names and address of customers, keycontac ts a t cus tomer , cus tomer express ions of in teres t in purchas ing C ompany orother fund-ra i s ing products , informa t ion regard ing custome r buying hab i t s an dpreferences and cus tomer contac t repor ts ," would be cons idered "conf iden t ia l andproprie tary to the Compa ny." Id.

1 6 3

164

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Cherrydale on April 14, 2008 but did not resign from KB until April 18, 2008.165Addit iona l ly, during h is years a t KB , Fisher c rea ted an d main ta ined a persona l copy of acustomer informa tion sheet l is t ing a l l KB custom ers he serviced, which he took with himwhen he l e f t KB. 1 6 6 Until the Court entered the Preliminary Injunction, 1 6 7 Fisher soldCherrydale products to customers he se rv iced whi le a t KB.168 Fisher a lso accessed theKB repor t porta l severa l t imes a f te r he accep ted employment wi th and began w ork ing forCherrydale. I 6 9 And, along with Southern, Fisher helped Hoffrichter correct old faxnum bers Hoffr ichter had pulled from the Consulta nt Schedule, so that Hoffr ichter couldsen d out his April 18 "Cherrydale Opportun ity" letter.17

F i she r 's Employment C on t rac t a l so con t a i ned a non compe t e c l au se whe reby heagreed "not to engage in or in any way assist in any sales or similar related work orservices fo r any third-party fund raisin g compan y . . . during [his] employmen t an d for aperiod of one year thereafter" in his "territory as assigned at termination" of

16 5. Tr. 1000, 1045-46, 1048.16 6X 25; T. Tr. 1019-20.167After en t ry of the Pre limina ry Injunct ion , F isher met wi th Con at i to t ransfe r hisformer KB customers to her. JX 98, 101. Through this transfe r, Fisher effe ctivelyviola ted para graphs 2(b) an d (c) of the Pre l iminary Injunct ion. This v iola t ion i s

discussed fur ther infra Part II.D.3.b.168X 29.16 9X 18.17 0X 77, 81 .

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employment . 1 7 1 De spi te knowing the terms of tha t non compete agreemen t , 1 7 2 Cherrydalenev ertheless caused Fisher to breach this provision by, amon g other things, encouragin ghim to cont inue se l l ing Cherrydale products to a t l eas t some of the sam e customers heserviced while employed by KB.173

As wi th Southern, Cherrydale 's in ten t ional en couragemen t of F i sher 's a c t iv i ti e s ,espec ial ly his pursui t of former KB custo mers 1 7 4 and h is over lapping employment wi thCherrydale contributed to Fisher's breach of several clauses in his contract. In theaf fec ted cov ena nt s , F i sher had agreed " to fo l low a l l [KB] pol ic ies an d procedures ," " todirect [his] full time and best efforts to sell and promote the products of [KB] in [hisass igned] Terr i tory ," to "re turn promptly upon termina t ion any a nd a l l Compan y-ownedmater ia ls such as . . . cus tomer f i les , invoices a nd a ddress f i les" as wel l as "an y mater ia lsprepared by [Fisher] utilizing any such Company-owned materials," to not "use anyinformation designated" as confidential or proprietary "for any purpose other than infur theran ce" of hi s responsib i li t i e s to KB, and not to com pete wi th KB for a spec i f i ed

17 1X 9.17 2X 51.173

X 29.174JX 56. In this email, Fisher told Hoffrichter that "I met with the school inFlagstaf f toda y [a school to which F isher had sold KB products in the pas t ] andthey were quite impresse d with my [Cherrydale] prize options. I sold my servicesand promotions. It was quite a generic presentation, but I think I have a greatchance to get them ba ck." Id.; see also JX 29.

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period. 1 7 5 Con sequent ly , Cherrydale 's in ten t ional ac t s a l so caused F isher to breach hisKB Employment Con trac t .

c.ohnsonThough he joined C herrydale af ter the APA wa s executed, Johnson, l ike Southernand Fisher , breached his KB Em ployment Contrac t in sev era l ways . 1 7 6 Johnson tes t i f ieda t depos i t ion an d aga in a t t r ia l tha t he main ta ins a l i s t o f cus tomers he serviced when hewas employed wi th KB on h is home compute r . 1 7 7 Shor t ly a f te r he jo ined C herryda le ,Johnson began se l l ing Cherrydale produc ts to many of these former KB cus tome rs .178Addi t ional ly , Johnson access ed the KB repor t por ta l an d rev iewed repor t s af t e r he l e f tKB a nd af ter the Pre l iminary In junc t ion wa s en tered. 1 7 9 As in the cases of Southern andFisher, such actions breached Johnson's contractual obligations "to follow all [KB]pol ic ies and procedures ," to "re turn prompt ly upon termina t ion an y and a l l Compan y-own ed ma ter ia l s such as . . . customer f i le s , invoices an d address f i l e s" as we l l as "an ymater ia l s prepared by [Johnson] u t i l iz ing an y such Compan y-owned m ater ia l s ," and tonot "use any information designated" as confidential or proprietary "for any purposeother than in fur therance" of his responsibi l i t ies to K B.

17 5 S ee JX 8; supra note 164.17 6ee supra notes 44-49 an d accompanyin g text .17 7. Tr. 848-50.17 8 Id. at 838-41.17 9 JX 16; T. Tr. 201-10 (Solima).

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W ith regard to Johnson 's n oncompete agreemen t , however , Cherryda le den ies tha tJohnson v io la ted tha t agreemen t because h is work for Cherrydale took place in count iesin Tennessee and Virginia that were part of his coverage territory at KB, not his"assigne d terr i tory.' ' 1 8 0 An ass igned te rri tory a t K B i s the t e rr i tory ass igned exclusive lyto one sa les rep for which that sales rep is responsible. I 8 1 Coverage terr i tory, in contrast ,was no t a s s igned t o any par t icu la r sa l e s r ep and cou ld be worked by any sa l e s r ep tha tchose to do so . 1 8 2 Great Am erican d id not coun te r Cherrydale ' s argument on th is poin t .Thus, I f ind that Great Ame rican has not sa t is f ied i ts burden of proof as to any cla im thatCherrydale caused Johnson to breach his noncom pete agreemen t.

6.herrydale's Unjustified ActionsAs to the fourth eleme nt of tort ious interference w ith contract, Cherrydale has notprovided an y jus t if i ca t ion for i t s ac t ions wi th regard to Southern, F isher , an d Johnsonother than to sugges t tha t such ac t iv i ty was common in the fundra is ing indus try and tha tGrea t A mer ican has bee n gui l ty of s imi lar tac t ics in the pas t . I 8 3 But , thi s argumen t doesnot excuse or justify Cherrydale's actions here. Alleging that a competitor may haveacted unla wfully or unethical ly does not excuse another compa ny's use of s imilar tact ics .

180X 295; T. Tr. 900-02, 913-14 (Johnson ).18 1. Tr. 895 (Johnson).182X 102, 313 a t 101-02, 133-34; T. Tr. 893-96 (Johnson ).18 3AB 26.

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Great A merican , therefore, has established the f irs t four elem ents of C herrydale 'stor t ious in ter ference w i th the KB Employmen t Contrac ts . Moreove r , there is no ser iousdispute that Cherrydale 's act ions caused a t leas t som e injury to Great Am erican, as i t hasshown a basis for l iabi l ity for tor t ious in terferenc e with contract . The par t ies s trenuouslydispute the amo unt of an y result ing dam ages, howev er, an d that issue is addressed in Par tII.D .2 .

7.B's Customer ContractsGreat A mer ican ' s c la im for tor t ious in ter ference w i th it s prospec t ive contrac tua l

re la t ions wi th KB's former customers i s dupl ica t ive of i t s c l a ims based on Cherrydale ' stor t ious in terferenc e with Southern, Fisher , and Johnson 's KB Em ploymen t Contracts an dmisappropriat ion of the KB customer l is ts .

In subs tance , Grea t A mer ican c la im s tha t , because i t purchased "a l l righ ts in an dgoodwill arising out of or relating to [KB's] relationships with [its] customers andsuppliers," 1 8 4 Grea t American had eve ry right to "expect, with reas ona ble certainty," thatthe KB customers serviced by Southern, Fisher, and Johnson would remain GreatAmerican cus tomers fo l lowing execut ion of the APA. This i s essen t ia l ly the sam e theoryGreat American advances in support of its claim for monetary damages based on itstor t ious in terference w ith contract and m isappropria t ion of trade secret cla ims.

Because Grea t A mer ican does not seek any addi t iona l re l ie f based on C herryda le ' stor t ious in ter ference wi th Grea t Am er ican ' s prospec t ive con trac tua l re la t ions wi th KB's

1 8 4PA 2.2(1). 44


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foiier customers and doe s not suggest any fa ctual dist inctions un ique to this c laim, it issubsumed in my discuss ion of Grea t Am er ican ' s tort ious in ter ference w i th contrac t andmisappropria t ion cla ims and wil l not be discussed fur ther .

C .id Cherrydale Misappropriate Great American's Trade Secrets?W ith respect to i t s c l a ims for misappropria t ion of t rade secre t s , Great Americanconten ds that , as par t of Cherrydale ' s e f for t s to recru i t KB employees a nd increa se i t scustomer base, it willfully and maliciously misappropriated Great American's tradesecrets , including the Consultan t Schedule, the Ra nking R eport , the Order Sta tus Report ,and other confidential and proprietary reports as well as KB customer contact andpurchas ing in forma t ion . Cherryda le counters by arguing tha t Grea t Am er ican did no testablish that the information a t issue const i tuted trade secrets or wa s misappropria ted byCherrydale because such in fo l ina t ion was used so le ly by independen t con trac tors whoseacts can not be a t tr ibuted to Cherrydale.

Unde r Delawa re law, an employer 's t rade secre ts are a pro tec table in teres t . 1 8 5 Inper ti nen t pa r t , the D e l aware Un i fo rm Trade Secre t s Ac t ( "DUTSA ") 1 8 6 def ines " t radesecret" as follows:

(4) "Trade secret" shall mean information, including aformula, pattern, compilation, program, device, method,technique or process, that:

18 5ee N ucar Consul t ing , Inc . v . Doy le , 2005 W L 8 20706, at *5 (D el . Ch. Apr. 5,2005), aff'd, 913 A.2d 569 (De l. 2006).18 6Del. C. 2001-2009.45


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a . Derives independent economic value, actual orpoten t ia l , f rom not be ing gene ra l ly known to , an d no tbe ing readi ly ascer ta inable by proper mean s by , o therpersons who can obtain economic value from itsdisclosure or use; andb. Is the subject of effor ts that are reason able under thecircumstances to main tain its secrecy.I87

In format ion m ust meet a l l requiremen ts of Sec t ion 2001(4) to qual i fy for " trade secre t"status. 1 8 8 Additionally, the DUTSA defines misappropriation, in relevant part, as the"[a]cquis i t ion of a t rade secre t o f an o ther by a person who knows or has reason to kn owthat the trade secret was ac quired by improper mean s."189

The pla in t i f f bears the burden of proving the exis tence a nd m isappropria t ion of at rade secret . 1 9 Specif ical ly, under the DU TSA, the pla in t i f f aff irmative ly must prove thefollowing: Firs t , that a trade secret exis ts , i .e ., the s ta tutory elemen ts comm ercia l ut i l i tyarising from secrecy and reasonable steps to maintain secrecyhave been shown;secon d, that the plaintiff com mun icated the trade secret; third, that such communica tionwas m ade pursuan t to an express or impl ied unders tanding tha t the secrecy of the mat ter

18 7ee id. 2001(4).18 8ionisi v. DeCampli, 1995 W L 398536, at *11 (D el. Ch. June 28, 1995), amended

by 1996 W L 39680 (De l . Ch. Jan. 23, 1996).18 9Del. C. 2001(2).19 0iles Inc. v. Cookson Am., Inc., 1994 W L 676761, a t *9 (De l. Ch. Nov. 15, 1994);Marsico v. Cole, 1995 W L 523586, at *4 (De l. Ch. Aug. 15, 1995).

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would be respected; and fourth, that the trade secret has been used or disclosedimproperly to the plain tiff 's detriment.191

In man y cases, including this one, the brunt of the D UTSA inquiry focuses on thefirst elemen t, i .e . , whether a trade secret exists . To prove that a trade se cret exists , GreatAmerican must demonstrate (1) that it possessed information sufficiently secret andvaluable to give it a competitive advantage and (2) that it took reasonable efforts tomaintain the secrecy of that information. 1 9 2 Once Great American establishes theexistence of a trade secret, it then must prove misappropriation by showing thatCherrydale knowin gly acquired such information by " improper mea ns ."193

Great American 's misappropriat ion claim implicates Cherrydale 's acquisi t ion anduse of the Consultan t Schedule, the Ran king Report , the Order Sta tus Report , and the KBcus tomer contac t an d purchas ing in forma t ion . Grea t Amer ican prove d a t t r ia l tha t thesedocumen t s an d i n fo rma t ion we re no t gen e r a l ly acces s ib l e and tha t re a sonab le e f fo rt swere m ade to m ain ta in the i r secrecy by l imi t ing acce ss to authorized sa les reps who,accord ing to the t e rms of KB 's Employment Con t rac t , 1 9 4 were required to main ta in theproprie tary nature of an y information, especia l ly customer information , obta ined from the

191ionisi, 1995 W L 398536, at * 11 (cit ing W ilm . Trust Co. v. Consistent A sset M gt.Co. , 1987 W L 8459, at *3 (De l . Ch. Ma r. 25, 1987).19 2ee, e.g., Triton Const. Co. v . E. S hore Elec. S erv ., Inc., 2009 WL 1387115, at *21(Del. Ch. Ma y 18, 2009), aff'd,.2 dDe l. Jan . 14, 2010) (ORD ER).193d .19 4ee, e.g., JX 8. 47


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KB repor t porta l or whi le working for KB. 1 9 5 Thus, my a na lysi s in th i s sec t ion focuseson w hether each cla imed trade secret der ived indepen dent econ omic va lue by vir tue of i tssecrecy.

Hav ing considered the eviden ce adduced at tr ia l under the applicable s tan dard, 1 9 6 If i nd tha t Grea t Amer i can has demon s t r a t ed tha t the Ran k ing Repor t , t he KB cus tomerinformation lists, and Southern's Order Status Report were trade secrets under theDUTSA. 1 9 7 I further find, however, that Cherrydale cannot be held liable formisappropria t ion of Southern 's Order Sta tus Report because Grea t American fa i l ed toshow Cherrydale is vicar iously l iable for Southern 's act ions in that regard.

19 5ee supranotes 92-95 and accompanying text; infra notes 231-34 andaccompa nying text; T. Tr. 944 (Will iamson).196Del. P.J.I. Civ. 4.1 (2000) ("Proof by a preponderance of the ev idence m ean sproof that some thing is more l ikely than not. I t mea ns that certain ev idence , whencompared to the ev idence opposed to i t , has the more conv inc ing force and m akesyou be l ieve tha t som ething i s more l ike ly t rue than no t .") ; Del. Express Shuttle,

Inc. v. Older, 2002 WL 31458243, at *17 (Del. Ch. Oct. 23, 2002) ("It isimportant to remember that the burden to be met by the Plaintiff is one of apreponderan ce of the evidence.").197Und er the terms of the APA, KB sold Great Am erican "[a] l l Intel lectua l Propertyor r ights there in o wne d or l i censed by [KB] a nd a l l r ights , c l a ims, and ca uses ofaction otherwise inuring to [KB] in respect of any past, present, or futureinfrin geme nt of the foregoin g." APA 2.2(j) . "Inte l lectual Property," as def ine din the APA, includes "confidential or proprietary information, including tradesecre t s , t echnology, know how, formulae an d customer a nd supplie r l i s ts . " APA 1.1(a) . Con sequen tly, there is no d oubt that Great A merican purchase d the r ightto br ing a cause of a c t ion aga ins t Cherrydale for misappropria t ion of KB's t radesecrets .

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1 .onsultant ScheduleOn February 8, 2008, Williamson sent Hoffrichter the 2005 version of theConsultan t Schedule. I 9 8 Hoffr ich ter in formed K raf t , Rosen , and Lights tone shor t ly a f terhe rece ived 1 . 1 . 1 9 9he Consultant S chedule is an assemblage o f largely public informationabout the KB sales force and represents a compilation of information under theD U T S A . 2 0 I t conta ins the sa les reps ' home phone n umbers , ce ll phone n umbers , s tree taddresses , hire dates , and the na mes of their spouses an d regional man agers .20I

Cherrydale denies that the Consultant Schedule constitutes a trade secret,contending that the Schedule "was old, outdated, and contained largely publicin format ion ."2 0 2 Cherrydale suppor ts th is asse r t ion by providing e vidence tha t KB l is tedthe names, phone numbers, fax numbers, and email addresses of its sales reps on itswebsite , 2 0 3 that the home addresses and names of sales reps' spouses were availablethrough public mean s, "such as the we l l -know n f ree w ebsi te , whitepages.com ," 2 0 4 an d

19 8X 1; T. Tr. 955-56 (William son).19 9X 47, 48.200See Del. Express Shuttle, Inc., 2002 WL 31458243, at *18 (citing Total CarePhysicians, P.A. v. O'Hara, 798 A .2d 1043, 1055 (D el . Super. 2001); Dionisi v .DeCampli, 1995 W L 398 536, at *11 (D el . Ch. June 28, 1995), amended by 1996W L 39680 (Del . Ch. Jan. 23, 1996)).

201. Tr. 187-88 (Solima).20 2AB 2.20 3ompare JX 1 with JX 138.20 4AB 30.

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that a 2007 change in the KB management structure rendered the regional managerin format ion obsole te . 2 0 5 Cherryda le argues, therefore, that the sales reps ' hire dates arethe only nonpublic pieces of information con ta ined in the Consultan t Schedule.

To qual i fy as a pro tec table t rade secre t , the Schedule must "[der ive] independen tecon omic va lue by v i r tue of it s not be ing gene ral ly known or read i ly asce r ta inab le byproper means." 2 0 6 In this regard, Great American failed to show that the ConsultantSchedulea nd the hire da tes i t con ta inedhad independen t economic va lue by v i r tue ofi ts secrecy. Thus, the Consultant Schedule is not a trade secret .

Great Am erican places s ignif icant e mphasis on Hoffr ichter 's admission a t tr ia l thathe used the Consulta nt Schedule to "accele rate" his efforts to recruit KB employe es.207Neve r the less , the informat ion on KB's websi te , as we l l as the informat ion a vai l ab le onfree, public websites , suggests that Cherrydale readily could have o btained esse ntia l ly a l lof the information contained in the Consultant Schedule, except for the hire dates,through proper means with relatively minimal expense or

efiled: jan 29 2010 2:30p transaction id

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