171 A.3d 544
Del.2017Background
- In 2011 Heartland acquired most of SL-Tech (including WebSMARTT) for $17 million; SL-Tech’s consulting division inTEAM and its DST software (Phase 1 completed; Phase 2 in development) were carved out and retained by Goodman/inTEAM.
- Transaction documents (APA, Co‑Marketing Agreement (CMA), Consulting Agreement) contained five‑year non‑compete, non‑solicit, exclusivity, and cross‑marketing provisions; the carve‑out preserved the “inTEAM Business as currently conducted,” plus DST Phase 2 described in functional design documents.
- WebSMARTT was a full end‑to‑end foodservice system (point‑of‑sale, menu planning, USDA nutrient analysis). DST was described as an analytics/modeling tool that would import menu/menu item data (from systems like WebSMARTT) to model staffing, equipment, costs.
- After closing, inTEAM developed Menu Compliance Tool+ (later CN Central), adding nutrient analysis and menu‑planning features (including a USDA‑approved simplified nutrient assessment path for Six‑Cent Certification) and an administrative‑review module.
- Disputes arose: inTEAM/Goodman sued Heartland for breach; Heartland counterclaimed. The Court of Chancery held inTEAM/Goodman did not breach the non‑competes but found Heartland and Goodman breached other provisions; both parties appealed.
- The Delaware Supreme Court reversed the Chancery Court on the key non‑compete issues: it held Goodman and inTEAM breached by offering nutrient‑analysis/menu‑planning functionality that competed with WebSMARTT, affirmed other findings against Heartland and Goodman, and remanded for remedying damages/injunctions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Goodman/inTEAM breached APA/CMA non‑competes by offering nutrient analysis (Menu Compliance Tool+) | Heartland: any software performing nutrient analysis to secure USDA Six‑Cent Certification competes with WebSMARTT and violates the non‑competes | Goodman/inTEAM: Menu Compliance Tool+ does only a simplified nutrient assessment (different regulatory path) and therefore is not competitive | Held: Breach. Court rejected reliance on USDA certification categories; simplified assessment still competes because it achieves the same regulatory compliance function as WebSMARTT. |
| Whether DST carve‑out (Functional Design Documents) permitted inTEAM to provide menu‑planning features that compete with WebSMARTT | inTEAM: Functional Design Documents reference “menu planning,” so Phase 2 carve‑out includes menu planning and thus permits Menu Compliance Tool+ | Heartland: DST’s “menu planning” was for analytics/modeling (importing menu data), not first‑level menu generation/USDA compliance; carve‑out did not authorize competitive menu‑planning functionality | Held: Breach. Court reads Functional Design Documents in context and finds DST intended only to import/menu data for modeling; inTEAM exceeded the carve‑out by implementing first‑level menu planning and compliance features. |
| Whether Heartland breached the CMA by collaborating with Colyar and whether injunction length was appropriate | inTEAM: Heartland’s collaboration with Colyar (an inTEAM competitor) violated CMA exclusivity/non‑compete; remedy should extend non‑compete period for duration of breach | Heartland: initial contact was unsolicited; Chancery overstated when breach began and abused discretion on injunction length | Held: Affirmed Chancery on breach. Court defers to Chancery fact findings about timing and systemic conduct; extension of non‑compete by the period of the breach (18 months) was not an abuse of discretion. |
| Remedy for Goodman’s breach of Consulting Agreement (forfeiture of fees) and entitlement to counsel fees under CMA | Heartland: breach of Consulting Agreement forfeits “any” compensation — recover full $600,000; inTEAM: seek attorneys’ fees under CMA | Goodman/inTEAM: forfeiture is prospective (no clawback of amounts already paid); fee‑shifting capped by liability cap and inapplicable if both parties breached | Held: Chancery correctly held forfeiture applies prospectively — Heartland recovers fees paid during breach ($50,003.01), not the entire $600,000. Fee‑shifting claim is moot since both parties breached and CMA cap bars award in the posture presented. |
Key Cases Cited
- Honeywell Int’l Inc. v. Air Prods. & Chems., Inc., 872 A.2d 944 (Del. 2005) (deference to Chancery’s factual findings that are supported by the record)
- Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728 (Del. 2006) (contract terms construed in context and read as the parties would have understood them ex ante)
- Acme Markets, Inc. v. Revello, 547 A.2d 131 (Del. 1988) (trial court’s role in assessing witness credibility)
- Firestone Tire & Rubber Co. v. Adams, 541 A.2d 567 (Del. 1988) (standard for appellate review of equitable remedies and abuse of discretion)
- N. River Ins. Co. v. Mine Safety Appliances Co., 105 A.3d 369 (Del. 2014) (standards for reviewing permanent injunctions)