Haney v. Blackhawk Network Holdings, Inc. ( 2016 )


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  •    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