FriendFinder Networks Inc. v. Penthouse Global Media, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
FRIENDFINDER NETWORKS INC. )
AND VARIOUS, INC., )
)
Plaintiffs, )
)
v. ) C.A. No. 12436-VCMR
)
PENTHOUSE GLOBAL MEDIA, )
INC., )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: February 14, 2017
Date Decided: May 26, 2017
Robert W. Whetzel, Steven J. Fineman, Jason J. Rawnsley, and Selena E.
Molina, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware;
Attorneys for Plaintiffs.
Stephen B. Brauerman and Sara E. Bussiere, BAYARD, PA, Wilmington,
Delaware; Attorneys for Defendant.
MONTGOMERY-REEVES, Vice Chancellor.
This dispute results from a transaction between two companies in the adult
entertainment and dating industry. As part of the transaction, various adult website
domain names transferred ownership. The transaction’s governing stock purchase
agreement did not list which domain names were to be transferred at closing. Rather,
the parties, through various negotiations before the transaction, agreed to identify
and transfer the relevant domains after closing. After the closing, the parties
exchanged lists of domain names, and ultimately, the seller transferred and the buyer
accepted over 1000 domain names.
The seller now sues, claiming nine of those domains still belong to seller and
were wrongfully transferred as part of the transaction. The seller argues that the
contract delineated only the intellectual property that was associated with, used in,
or material to the business of the buyer at the time of closing, and the nine domains
are not included in that category. The buyer, on the other hand, argues that the
parties entered into two separate contracts regarding the domains, and the nine
domains were appropriately transferred under those agreements. As discussed
below, I find that the stock purchase agreement provides an unambiguous standard
for the identification of the domain names, and the parties operated under this
agreement. The buyer is entitled to domain names associated with, used in, or
material to its business at the time of closing, and the buyer has not presented
evidence to show that the disputed domains fall under this category.
2
I. BACKGROUND
These are my findings of fact based on the parties’ stipulations, over 300
exhibits, and the testimony of nine witnesses during a three-day trial. I accord the
evidence the weight and credibility I find it deserves.1
A. Parties and Relevant Non-Parties
Plaintiff FriendFinder Networks Inc. (“FriendFinder”) is a social networking,
online dating, and video-sharing services company that provides video chat,
recorded video, online chat rooms, webcams, instant messaging, photo and video
sharing, and premium content.2 FriendFinder has over 700 million members around
the world.3 Plaintiff Various, Inc. (“Various”) is a wholly-owned subsidiary that
operates the dating and video-sharing businesses of FriendFinder.4
Jon Buckheit has been FriendFinder’s Chief Executive Officer since August
2015 and a member of its board since early 2015.5 Ezra Shashoua joined Penthouse
1
Citations to testimony presented at trial are in the form “Tr. # (X)” with “X”
representing the surname of the speaker, if not clear from the text. Exhibits are cited
as “JTX #,” and facts drawn from the parties’ Joint Pre-Trial Stipulation and Order
are cited as “PTO ¶ #.” Unless otherwise indicated, citations to the parties’ briefs
are to post-trial briefs.
2
FriendFinder Networks, Who We Are, http://www.ffn.com/#about (last visited
January 25, 2017).
3
Id.; Tr. 9-10 (Buckheit).
4
JTX 339; Tr. 17 (Buckheit).
5
Tr. 5, 56-57 (Buckheit).
3
Media Group, Inc. (“PMGI”) in 2007 before its initial merger with Various later that
year; Shashoua became the Chief Financial Officer of FriendFinder on January 1,
2008.6 Shashoua left FriendFinder in July 2014, returned in September 2015, and
represented FriendFinder in the negotiations at issue here.7 Shashoua is also a
member of FriendFinder’s board. Diana Ballou is Vice President and Senior
Counsel at FriendFinder and is the in-house attorney “principally responsible” for
the transaction.8
Defendant Penthouse Global Media Group, Inc. (“Penthouse”) is an adult
“entertainment and media firm” with four business units—publishing, broadcast,
digital media, and licensing.9 Kelly Holland is the owner and Chief Executive
Officer of Penthouse.10 Donald Slaughter is the Chief Operating Officer of
Penthouse and oversaw its performance under various agreements with
FriendFinder.11 Tom Fox is the Chief Technology Officer of Penthouse and served
as Vice President of information technology at FriendFinder prior to the
6
Id. at 118-19 (Shashoua), 476-77 (Holland); PTO ¶¶ 6-8.
7
Id. at 119-20 (Shashoua), 25 (Buckheit).
8
Id. at 241 (Ballou), 25 (Buckheit).
9
JTX 143; JTX 186; Tr. 461 (Holland).
10
Tr. at 464-67 (Holland).
11
Id. at 790-91 (Slaughter).
4
transaction.12 Relani Belous is Penthouse’s General Counsel and served as Senior
Counsel and Vice President of FriendFinder prior to the transaction.13
B. Facts
1. The businesses prior to the transaction
Penthouse magazine was founded in 1965 by Bob Guccione and grew into a
well-known brand worldwide. In 2007, PMGI acquired Various, and afterwards the
entire business was held by the newly created entity, FriendFinder.14 Prior to the
transaction at issue, FriendFinder consisted of three business units: dating, cams, and
entertainment.15 The dating business was located in Silicon Valley, California and
comprised a “series of dating websites for various proclivities of individuals.”16 This
included the dating website FriendFinder.com, which catered to the mainstream
population and offered online communities for various cultures, religions, and
interest groups.17
12
Id. at 706 (Fox).
13
Id. at 634, 660 (Belous).
14
Id. at 476-77 (Holland); PTO ¶¶ 6-8.
15
Tr. 10, 61 (Buckheit).
16
Id. at 10 (Buckheit).
17
Id. at 10-11 (Buckheit); JTX 116.
5
As part of its dating business, FriendFinder also ran AdultFriendFinder, a
member-based adult dating and social networking platform on which a user may
view another’s profile for free but must pay to communicate with other users.18
FriendFinder also maintained “co-brands,” which are websites that contain different
“themes” targeted at particular interests. Although the theme for each co-brand
differed, each allowed users to view profiles throughout the AdultFriendFinder
database and the other co-brands.19 As part of this design, the co-brands had
different pages one saw when he or she loaded the website prior to login (“Splash
Pages”), but the co-brands shared the same layout and structure after login.20
FriendFinder also engaged affiliates—websites that placed a link to one of the co-
brand websites on their page—to direct traffic to the AdultFriendFinder network
websites.21 In return, the affiliates received a portion of any subsequent subscription
fee.
The cams business, also located in Silicon Valley and operated by a subsidiary
called Streamray, Inc. (“Streamray”), offered live, pay-per-view broadcasts through
18
Tr. 123-24 (Shashoua).
19
Id. at 124-25 (Shashoua), 11-12 (Buckheit).
20
Id. at 397-99 (Palage); JTX 68; JTX 334 ¶¶ 62-66.
21
Tr. 12-13 (Buckheit), 126-27 (Shashoua).
6
which customers could interact with models on a video feed.22 Cams.com was the
main website for this business.23
The third business unit was the Penthouse entertainment business, which was
located in New York and Los Angeles.24 This business consisted of broadcasting,
publishing, licensing, and online paysites.25 It relied on professionally generated
content, rather than the user-generated content hosted by the dating and cams
businesses.26 The three business units shared operations, including executive
management and assets, and shared legal, accounting, and technology departments.27
The technology department used the same data center, network provider, and staff
for all three business units.28
2. The domains before the transaction
At trial, FriendFinder’s expert, Michael D. Palage, a domain name registration
consultant, testified as to how website and domain name ownership is monitored.
22
Id. at 13-15 (Buckheit).
23
Id. at 14-15 (Buckheit).
24
Id. at 14-15 (Buckheit).
25
Id. at 122 (Shashoua), 14-15 (Buckheit).
26
Id.
27
Id. at 178, 187, 193-94 (Shashoua).
28
Id. at 708 (Fox).
7
According to Palage, domain names are essentially short-hand, intuitive
identifiers—i.e. Facebook.com, Google.com—for a website’s IP address.29 Because
of domain names, users do not have to remember the complex, numerical IP
addresses of websites.30 Domain names are registered on “name servers,” which
essentially act as telephone directories for website domain names.31 Name servers
can be hosted by an individual or a third-party service.32 A registrar helps a person
or entity register a domain name.33 Well-known registrars include GoDaddy,
NetworkSolutions, and CSC.34 If the registrar finds that the domain name is
available, it will collect information on the owner, known as a registrant.35 The
registrar then stores the contact information of the registrant and makes certain
information publicly available.36 This data is available through the WhoIs service,
29
Id. at 380-83 (Palage).
30
Id. at 381 (Palage).
31
Id. at 382-83 (Palage).
32
Id. at 382 (Palage).
33
Id. at 385-87 (Palage).
34
Id. at 386 (Palage).
35
Id. at 387 (Palage).
36
Id. at 387-88 (Palage).
8
which contains a searchable database of registration information for domain
names.37
Palage testified that WhoIs information is not always accurate because of
illegal “cybersquatting” and registrants’ delay in updating their registration
information when it changes.38 Thus, Palage uses multiple “indicia” to subjectively
determine the ownership of a domain.39 This includes WhoIs current and historical
data, the current and historical use of the domain, financial data such as costs and
revenue associated with the domain, and any transactional records.40
There are nine website domains in dispute in this case: hornywife.com,
bookofsex.com, photobookofsex.com, photogalleryofsex.com, nakedwithfood.com,
nakedfemalebodybuilder.com, boobfarm.com, boob-squad.us, and missblizz.com
(collectively, the “Disputed Domains”).41 All of the Disputed Domains were
registered through GoDaddy, and eight of the nine domains were maintained in a
“penthouse2010” GoDaddy account prior to the transaction.42
37
Id. at 388-90 (Palage).
38
Id. at 391 (Palage).
39
Id. at 394-96 (Palage).
40
Id.
41
Compl. ¶ 1 n.1.
42
Tr. 413-14 (Palage), 716 (Fox).
9
a. Hornywife
The earliest WhoIs record for hornywife is from 2001, and it shows the
registrant as GMCI Internet Operations, Inc. (“GMCI”), with a New York address.43
GMCI is a Penthouse-associated business. Using a Wayback Machine44 search,
Palage found that from 2005 to 2011, the hornywife website was automatically
redirected to penthouse.com.45 By November 2011, the registrant for the hornywife
domain changed to Various, with a California address, and the name servers were
switched from Penthouse servers to Various servers.46
Hornywife.com became an AdultFriendFinder co-brand on September 14,
2011.47 Hornywife’s Splash Page lists Various as the copyright owner.48 In
September 2011, Various’s accounting records reflected revenue from this domain
for the first time, and since then, Various paid affiliates, incurred advertising costs,
43
JTX 334 ¶ 71-73.
44
The Wayback Machine is a tool commonly used in the industry to establish the
existence of specific information available at a given website on a given date. JTX
334 ¶ 59.
45
JTX 334 ¶ 85.
46
Tr. 400-01 (Palage); JTX 334 ¶¶ 79-81.
47
Tr. 137-38 (Shashoua), 401-02 (Palage); JTX 62.
48
Tr. 137-38 (Shashoua), 401-02 (Palage); JTX 62.
10
promoted the website among affiliates, paid to purchase keywords for search engine
optimization, and recognized revenue from the domain.49
b. Bookofsex
In 2011, Facebook sued FriendFinder for using the domain
facebookofsex.com as a dating website.50 In response, FriendFinder purchased
bookofsex.com in April 2011 from worldwide media, inc., which had been listed as
the registrant since 2005.51 FriendFinder developed bookofsex.com to use as a co-
brand for AdultFriendFinder.52 In May 2011, the registrant changed to Matthew
Schmitt at GMCI, and the name servers changed to FriendFinder name servers.53 In
August 2011, the bookofsex registrant information changed from GMCI to
Various.54
Various has paid for affiliates, advertising, and search engine optimization for
bookofsex.com, and it has recognized revenue for the website since 2011.55 Prior to
49
JTX 6; Tr. 155, 161 (Shashoua), 398 (Palage).
50
Tr. 139 (Shashoua).
51
JTX 46; JTX 334 ¶ 93; Tr. 139, 142-44 (Shashoua).
52
JTX 46; JTX 334 ¶ 93; Tr. 139, 142-44 (Shashoua).
53
JTX 334 ¶ 95; Tr. 404 (Palage).
54
JTX 334 ¶ 98.
55
JTX 5; Tr. 125-26, 144, 162-63 (Shashoua), 404 (Palage).
11
June 2011, the domain was primarily used as a “link farm” for other domains
offering adult content.56 In June 2011, the website changed to contain the bookofsex
logo, and the copyright and terms of use have identified Various as the owner since
that time.57 In November of 2011, the website changed to the design that currently
is visible, and it was maintained as an AdultFriendFinder co-brand until the time of
the transaction at issue.58
c. The inactive websites
On May 3, 2011, after the Facebook litigation, the domains photobookofsex
and photogalleryofsex were created.59 They originally were registered to
FriendFinder but were transferred to Various in 2013.60 There has been no recorded
website activity at these domains, and the name servers have been FriendFinder
name servers since 2011.61
56
JTX 334 ¶ 103.
57
Id. ¶ 105; Tr. 403-04 (Palage).
58
JTX 334 ¶¶ 106-07.
59
Tr. 144 (Shashoua), 405 (Palage); JTX 334.
60
Tr. 405; JTX 334.
61
Tr. 405-06 (Palage).
12
On October 27, 2009, ConfirmID, a Various subsidiary, purchased a portfolio
of adult entertainment domain names for $120,000.62 The portfolio included
nakedfemalebodybuilder, nakedwithfood, boobfarm, and boob-squad.63 Initially,
these domains continued to host the previous owner’s content, but all except
boobfarm later became inactive.64 Boobfarm continued to be used to direct traffic
to AdultFriendFinder co-brands and other FriendFinder websites.65 From 2012 until
the close of the transaction at issue, these domains were all registered to
ConfirmID.66
Missblizz was registered to Anthony Previte, the Chief Operating Officer of
FriendFinder in 2011.67 The registrant was transferred to a default “Host Master”
account associated with FriendFinder on November 10, 2014.68 The domain has not
been active since around 2012.69
62
JTX 28; JTX 29; Tr. 145-46 (Shashoua), 407 (Palage).
63
Tr. 146-47 (Shashoua).
64
Id. at 407 (Palage); JTX 334.
65
Tr. 407-08; JTX 334 ¶¶ 118-21.
66
Tr. 406-07; JTX 4; JTX 334.
67
Tr. 134 (Shashoua), 408 (Palage); JTX 334.
68
Tr. 408-09 (Palage); JTX 334.
69
Tr. 409 (Palage); JTX 334.
13
d. The “silo” system
In 2012, FriendFinder began an accounting initiative to properly allocate
expenses and revenues to the appropriate entities and business units.70 To aid in this
transition and to give employees an understanding of how to attribute revenue and
costs, managers and executives, including Holland, Fox, and Belous, received a
“Coding Cheat Sheet,” which divides FriendFinder’s internet assets into “silos.”71
The “Casual Dating Silo” includes hornywife and bookofsex, among others, grouped
under AdultFriendFinder.72 The attributed company for the Casual Dating Silo is
listed as Various.73 The “Paysite Silo” includes websites like penthouse.com,
danni.com, dammo.com, and hotbox.com.74 The attributed companies for the
Paysite Silo are listed as GMCI, Danni Ashe, Inc., and Tan Door Media Inc.—all
Penthouse-associated companies.75 No Disputed Domains or dating websites are
listed in the Paysite Silo.76 The last page of the cheat sheet includes a list of “Domain
70
JTX 76; Tr. 149-51 (Shashoua), 594-95 (Holland).
71
JTX 76; JTX 77; Tr. 152, 154 (Shashoua), 665-67 (Belous); Holland Dep. 235.
72
JTX 76; Tr. 154-56 (Shashoua).
73
JTX 76; Tr. 154-56 (Shashoua), 596-97 (Holland).
74
JTX 76.
75
Id.; Tr. 158 (Shashoua).
76
Tr. 159 (Shashoua).
14
Names & Back-end Acronyms,” which lists hornywife and bookofsex with the
“Ffadult” back-end acronym, meaning AdultFriendFinder, as opposed to “Ph” for
Penthouse.77
3. FriendFinder prepares to sell Penthouse
In 2014, FriendFinder began exploring the possibility of selling the Penthouse
business because Penthouse did not fit within FriendFinder’s “core business” and
was losing money.78 FriendFinder engaged SSG Advisors, LLC (“SSG”), an
investment banker, to prepare a confidential information memorandum (the
“Memorandum”) to market Penthouse.79 The Memorandum provides a description
of the Penthouse online business, which includes penthouse.com, danni.com,
hotbox.com, and dammo.com, biographies of Holland and Belous, and a chart
identifying the Penthouse-associated subsidiaries for sale (the “Acquired
Companies”).80
77
Id.
78
Tr. 23 (Buckheit), 164 (Shashoua).
79
JTX 113; Tr. 164-65 (Shashoua).
80
JTX 113. The Acquired Companies are: Danni Ashe, Inc.; GMCI Internet
Operations, Inc.; GMI On-Line Ventures, Ltd.; General Media Communications,
Inc.; General Media Entertainment, Inc.; Great Ganilly Enterprise, Ltd.; NAFT
Media, S.L.; Network Domain Services N.V.; PMGI Holdings Inc.; Penthouse
Clubs International Establishment; Penthouse Digital Media Productions Inc.;
Penthouse Images Acquisitions, Ltd.; Pure Entertainment Telecommunications,
Inc.; Streamray Studios, Inc.; Tan Door Media Inc.; and XVHUB Group Inc. PTO
¶ 11.
15
FriendFinder established a data room called the “Smart Room” to allow
prospective buyers access to documents associated with the Penthouse business. 81
Ballou and her assistant uploaded documents to the Smart Room.82 On June 12,
2014, Holland asked Fox to create a list of domains owned by GMCI. 83 Fox asked
Doug Canny, a FriendFinder employee, to generate this list by searching all domains
containing “Penthouse,” “pet,” “key,” “forum,” “variations,” and “letters,” as well
as “Danni’s,” “Hotbox,” and “Dammo.”84 Canny sent these lists to Holland and
Fox.85 Ballou instructed her assistant to upload the lists to the Smart Room (the
“Data Room Lists”).86 These lists included 1,074 domains, none of which were the
Disputed Domains, and were represented as the list of Penthouse domains in various
Penthouse and FriendFinder documents.87 For instance, in connection with the sale,
81
Tr. 170-71, 197 (Shashoua), 249-54 (Ballou).
82
Tr. 251 (Ballou), 474-75 (Holland).
83
JTX 98.
84
JTX 99; JTX 101.
85
JTX 101.
86
Tr. 256-57, 319 (Ballou).
87
JX 113, at FFN00060555 (the Memorandum); JTX 122 (an investment overview
document for prospective investors); JTX 166 (information certificates for potential
investors); JTX 171, 172 (Penthouse application for media liability insurance); JTX
176 (information sent to potential Penthouse investor).
16
Penthouse sought to obtain errors and omissions insurance coverage.88 On February
5, 2016, Belous sent Shashoua a draft of the application in order to allow Penthouse
to obtain a post-closing insurance quote for one of the Acquired Companies,
Penthouse Digital Media Productions, Inc. (the “Application”).89 On the
Application, Belous submitted the Data Room Lists as the documentation of
websites “for which coverage is desired.”90
4. The lead-up to the transaction
Around mid-2014, Holland began considering acquiring Penthouse. Holland
felt that she could revitalize the business and assembled a team to help her with that
goal. In July 2014, she engaged Hogan Lovells as legal counsel to represent her in
the buyout.91 In November 2014, she hired Noble Financial to “walk [her] through
the process” of a management buyout.92 Holland’s initial efforts halted, however,
when her investors backed out.93 Unbeknownst to Holland, FriendFinder continued
88
JTX 171; Tr. 644-46 (Belous).
89
JTX 171.
90
Id.
91
Tr. 473:1-13 (Holland).
92
Id.
93
JTX 124; Tr. 474 (Holland).
17
discussions with AVN, “a big trade magazine in the business.”94 AVN initially
worked with Holland as a financial partner for her proposed purchase of Penthouse.95
AVN signed a non-circumvention agreement with Holland in connection with their
potential partnership.96
At the same time, FriendFinder also engaged in discussions with Vert Capital
(“Vert”).97 Although Vert signed a contract to purchase Penthouse, this deal fell
through at the end of 2015.98 Holland got back on track and submitted a bid for
FriendFinder.99 Meanwhile, AVN expressed interest in purchasing Penthouse for
itself in violation of its non-circumvention agreement with Holland. Holland
eventually learned of AVN’s interest through FriendFinder. FriendFinder accepted
Holland’s bid on the condition that she agree to release AVN from the non-
circumvention agreement if she could not close the deal before February 12, 2016.100
Although the exclusivity period expired on February 12, Holland was given an
94
Tr. 484-85 (Holland).
95
Id. at 484-86 (Holland).
96
Id.
97
Id. at 199-200 (Shashoua).
98
Id.
99
Id. at 484-86 (Holland).
100
Id. at 484-86, 492-93 (Holland).
18
extension until February 19, but FriendFinder told her they would not extend it
beyond that date.101 After that date, the magazine would miss its print deadline and
lose distribution.
5. Pre-closing exchanges and closing
On February 15, 2016, Holland sent an e-mail to Ballou and Shashoua titled
“A few random points” stating:
The digital team was looking for a specific URL,
hornywives.com, that was a Penthouse site back in the
Guccione days. It shows as being registered to FFN but I
can’t find it on the URL list. In assembling the URL list
did anyone compare it to the list of URL’s that belonged
to Penthouse prior to the FFN acquisition? I’m concerned
that PH URLs that don’t specifically have PH embedded
are not easily identified.102
Ballou responded by telling Holland to “[p]repare a list of those URLs you believe
are part of the business that are not listed and we will review asap. It’s likely most
if not all will be a non-issue.”103 Holland replied to Ballou, copying Shashoua,
saying “Thanks.”104 Shashoua responded to Holland’s original e-mail by stating
“I’m sure we can straighten it out either before or after we fund if a site fell through
101
JTX 149; JTX 186; Tr. 323 (Ballou), 207 (Shashoua), 492-93 (Holland).
102
JTX 179.
103
JTX 180.
104
JTX 182.
19
the cracks.”105 Holland replied to Shashoua’s e-mail, copying Ballou, saying
“Agreed, no problem.”106
Fox e-mailed Holland on February 18, 2016, stating:
The account we want to take ownership of is the godaddy
login named “penthouse2010” and the domains contained
within it, AND any of the domains that you want that
reside in other accounts (both at godaddy and other
registrars). If we can slide this one past Diana it will be
nothing short of an awesome heist.107
Contrary to Fox’s suggestion, Penthouse did not try to obtain the “penthouse2010”
GoDaddy account.
The transaction closed on February 19, 2016 with FriendFinder and Streamray
as sellers and Penthouse as buyer.108 Penthouse acquired the stock of sixteen
subsidiaries of Friendfinder for $6,500,000.109 The transaction was memorialized in
a Stock Purchase Agreement (“SPA”), Transition Services Agreement (the “TSA”)
to continue certain shared services such as FriendFinder’s hosting of Penthouse’s
105
JTX 181.
106
JTX 178.
107
JTX 190.
108
JTX 186.
109
Id.; JTX 339.
20
website servers,110 and the Live Video Streaming Agreement (the “LVSA”) to share
revenue from the cams websites.111
6. The SPA’s relevant provisions
The SPA contains the following relevant language:
Section 3.10 Intellectual Property
(a) . . . the Acquired Companies own or otherwise have
the right to use all Intellectual Property that is used in, and
is material to, the operation and conduct of the business of
the Acquired Companies as currently conducted.
(b) To the knowledge of the Sellers, the Acquired
Companies have taken all reasonable steps that they
believe are necessary to maintain and protect their right,
title and interest in and to such Intellectual Property. . . .
(e) The representations and warranties in this Section 3.10
are the sole and exclusive representations and warranties
of the Sellers concerning Intellectual Property.
Section 8.4 Entire Agreement
This Agreement together with the Sellers Disclosure
Schedule and the Transaction Documents contains the
entire understanding of the parties hereto with respect to
the subject matter contained herein and supersedes all
prior agreements, covenants, representations, warranties
and understandings, oral and written, with respect thereto.
Section 8.15 Injunctive Relief
The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this
110
JTX 186, at FFN0010283-10304; Tr. 29-30 (Buckheit).
111
JTX 186, at FFN0010257-10282; Tr. 29-30 (Buckheit).
21
Agreement were not performed in accordance with their
specific terms. It is accordingly agreed that the parties
hereto shall be entitled to seek an injunction or injunctions
to prevent breaches of this Agreement and to seek to
specifically enforce the terms hereof . . .
“Intellectual Property” means any of the following: (a)
All registered and unregistered trademarks, service marks,
trade names, trade styles and pending trademark and
service mark registration applications, including intent-to-
use registration applications; (b) all registered and
unregistered copyrights and applications for registration
thereof; (c) all domestic and foreign patents and patent
applications, (d) all Internet domain names, (e) all trade
secrets and (f) all graphic representations and logos
associated with Acquired Companies.112
7. Post-closing occurrences
a. Penthouse focuses on the domain lists
On February 29, 2016, Don Guarnieri, Penthouse’s digital media manager,
asked if Fox had a list of acquired domains.113 Fox replied, “No list. I was just
chatting with Andrey @ FFN about it. We’re both ready to go but neither of us have
an authoritative list of domains to work against. FWIW I’ve been asking Kelly for
that domain list for 3 weeks now.”114 Later that day, Belous sent a domain list to
112
JX 186, Annex 1-Definitions, at FFN0010236.
113
JTX 196; Tr. 498 (Holland).
114
JTX 196.
22
Guarnieri as an attachment to an e-mail titled “List of Sites,” and Guarnieri
forwarded this on to Fox.115
On March 1, 2016, Fox e-mailed Holland, Belous, and Guarnieri and asked,
“Where is the rest of the list btw. What I received from Don only contains penthouse
and danni related names. I thought someone had gone through their list of 4k+
names and cherry picked a bunch of them? What happened to all those, is there a
more complete list?”116 Holland replied, “. . .Within the data room and as part of the
sale process I’ve had access to the ‘Penthouse’ asset list but I have never had the
complete FFN list. I can request it, they can object, before I put it on their radar do
we have it from another source.”117 Fox then sent a link to the “complete FFN list”
and suggested that they “[d]ownload the entire list while you still have network
access.”118 Guarnieri replied, “Got it.”119 Later that day Guarnieri e-mailed Holland
stating he had the “list from [Belous] that was labeled WEBSITE LIST – Question
4.A[.] Hotbox.com and .net are on the list. Only domain missing that I was hoping
115
JTX 195.
116
JTX 201.
117
Id.
118
Id.
119
Id.
23
to get was hornywife.com[.] Also have access to FFN big list of domains and
downloaded the entire 4,000+ list for anything else that looks good.”120
b. A new list is created with the Disputed Domains
On March 3, 2016, Guarnieri sent an e-mail titled “additional domains to be
transferred to PGMI” to Holland and Slaughter with an attached list of 145 additional
domains, which included eight of the Disputed Domains, excluding bookofsex.121
On March 7, Guarnieri sent an updated list to Holland and Fox where he removed
photofriendfinder from the list but added other names to the list. This list included
all nine Disputed Domains.122
On March 4, 2016, Fox e-mailed Ballou to update her on the progress of the
transition. In regards to domains, he said, “This is a job to get started next week.
I’ll be working closely with Andrey to transfer the domains of primary importance
in small batches, and the less important ones in larger batches. This task will take
some time but will be steady progress once we begin.”123
120
JTX 198.
121
JTX 202.
122
JTX 206.
123
JTX 204.
24
On March 18, 2016, Holland e-mailed Ballou, Shashoua, and Belous a list of
additional domains that “are part of Penthouse and Danni’s.”124 The list included all
nine Disputed Domains (the “March 18 List”). Ballou replied that she would review
the list with Andrey “and revert back.”125
Three days later, Ballou asked Holland where she found the list and said:
I’m just a few URL’s in and I see some that are not PH- ie
bondage.com, Streamray.com etc. while others that are
clearly PH and some that were already listed on the
SmartRoom URL lists (Variations URL’s for example)
I am going to have all of the ownerships checked but if
you can tell me where you sourced it – it might be easier.126
Ballou then asked Kam Miller, an employee in the IT department, to check the
domain registration records and find the registrant of each domain.127 Miller sent a
list of the domains with the registrants and bolded the domains that were not
registered to an Acquired Company.128 All nine Disputed Domains appear on
Miller’s list and are categorized as FriendFinder domains.129
124
JTX 210.
125
JTX 211.
126
JTX 213.
127
Tr. 272 (Ballou).
128
Id. at 272-76; JTX 4.
129
JTX 4.
25
On March 26, 2016, Belous e-mailed Ballou regarding the source of the list
and said Holland “got this list from the FFN master list as many of these names
contain ‘pet’ and other PH marks, they should fall under the category of Penthouse
sites.”130 Ballou replied that they “had id’d all ownership of URL’s on the list and
will add all the PH ones to the transfer list,” but Ballou did not identify or otherwise
share the transfer list referenced in her e-mail.131
Holland also e-mailed Ballou on March 24, explaining that “[t]he individual
girl sites are Dannis. This is the launch of Horny Wife in 1999” and attaching a
January 1999 cover of Penthouse magazine on which a story regarding
hornywife.com is prominently featured.132 Ballou replied that they were “going to
go by WhoIs ownership. Hornywife.com is owned by Various. The final approved
list has already been sent to our IT department for inclusion in the original 6 lists
that were in the SmartRoom.”133 Holland replied, “With all due respect that means
nothing at all because Various transferred URL’s when we bought it. That has, since
1999, been a Penthouse site.”134 Belous then sent Holland a link showing that in
130
JTX 217.
131
Id.
132
JTX 216.
133
Id.
134
JTX 221.
26
2005 the hornywife website was redirected to penthouse.com.135 Holland forwarded
this along to Shashoua, Ballou, Guarnieri, and Slaughter.136 Ballou responded,
“Where is [hornywife] directed now?”137
On April 25, 2016, Guarnieri sent a list of 1,193 domains, including the
Disputed Domains, to Fox and Holland, and stated “[o]bviously there are some
domains FFN will not transfer.”138 The next day he sent an updated list.139 He
removed the domains that “were clearly FFN” and stated that he believed Penthouse
had “a claim on all of the domains listed.”140 Holland responded to this stating that
six domains on the list were “seemingly, not ours”: sexy-panty-hose-pictures.com,
sexydealfinder.com, sexyflashdeals.com, photobookofsex.com, and
singlesofturkey.com.141 Guarnieri answered that he had removed these domains and
that they were copied in by mistake.142 Belous provided the WhoIs information for
135
Id.
136
Id.
137
JTX 222.
138
JTX 231.
139
JTX 240.
140
Id.
141
JTX 242.
142
Id.; JTX 243.
27
five of the domains, including photobookofsex, and said, “All owned by Various
Inc. and registered on the same date in 2012.”143
c. Disputes arise
Beginning in March 2016, Penthouse disputed the amount it owed under the
LVSA. By April 25, 2016, Buckheit gave the order to stop all work under the TSA,
which included the domain transfers, because Penthouse had not paid its invoices
under the LVSA. On April 25, 2016, he sent an e-mail to Fox, copying Ballou,
Slaughter, Belous, Shashoua, and Holland saying “The ball is in your court.”144
Holland responded, “Actually, the ball is now in Hogan Lovell’s court.”145
After various failed attempts to resolve the issue,146 on April 26, 2016, Penthouse
terminated the LVSA.147 As part of the termination, Penthouse agreed to pay the
corrected amount due less a 10% discount.148
On the same day, Slaughter forwarded an e-mail titled “Notice of Breach” to
Buckheit and Shashoua with a letter attached from Hogan Lovells stating that
143
JTX 243.
144
JTX 232; JTX 239.
145
JTX 236.
146
JTX 232; JTX 238.
147
JTX 248.
148
Id.
28
FriendFinder had intentionally and willfully breached the TSA and demanding
FriendFinder cease and desist its breach.149
d. The April 28, 2016 e-mail
On April 28, 2016, Slaughter sent an e-mail addressed to Buckheit, but also
included Shashoua, Ballou, Holland, Belous, Fox, Guarnieri, and Russ Cashdan
(Penthouse’s Hogan Lovells counsel) as recipients, as well as five other
FriendFinder employees. He wrote in relevant part:
FFN breached the TSA by improperly interrupting service
without cause. Despite our notice, FFN by your personal
instruction has intentionally failed to cure the breach thus
damaging our ability to transition and operate. . . .
As a courtesy and pursuant to the LVS agreement, we
provided FFN 5 days to terminate. You personally and
unilaterally choose to terminate the services ahead of the
expiration of the notice. Furthermore, and to compound
the matter, you attempted to deceive a Penthouse
employee into entering an agreement binding Penthouse.
...
Attached please find a list of Penthouse assets that you
personally, and other FFN employees have refused to
provide in direct violation of the agreements between us.
I will continue to work with the FFN staff directly to
complete the transition, but please [be] advised: you are
personally prohibited from contacting any Penthouse
employee and all Penthouse personnel have been
instructed not to accept or answer any further
communication from you. . . .
149
JTX 245.
29
FFN’s breach of the TSA, and your personal behavior
have caused, and continue to cause irreparable harm to
Penthouse.150
This e-mail contained an attachment with a list of domain names that combined the
Data Room Lists and the March 18 List (the “April 28 List”).151 The supplemented
domains from the March 18 List were bolded, underlined, indented, colored in blue
font, and marked as “Additional” to differentiate them from the original Data Room
Lists.152 The attachment also stated that only two of the domains on the list had been
transferred to date and demanded that all the listed domains be transferred by May
2.153
That night, Buckheit sent an initial e-mail and stated:
Don,
As I’ve said, I am your point of contact in our
organization. If you have needs to address, you must do
so directly with me. You have no reasonable basis to insist
otherwise. My tendency not to necessarily agree with you
is insufficient grounds to establish an alternative
communication path.
As for the TSA, services were resumed as soon as you
wired the money.
150
JTX 251.
151
Id.
152
Id.
153
Id.
30
We have attempted to transfer some of the domains to you
when you requested, but you were unable to accept them.
This is documented and we can send you this
documentation.154
The next day, Buckheit sent a second e-mail and stated in relevant part:
Pursuant to your demand that we transfer control of all
domains on the list attached to your e-mail from yesterday
evening by May 2, we are ready to do so, with the
exception of your improper demand that we transfer
control of stonerfriendfinder.us, which is not a domain that
was purchased from FriendFinder Networks Inc.
Would you please let us know a time today (April 29) or
Monday (May 1) that works for you to receive DNS
control of all of these domains? Thereupon we will initiate
the complete transfer at that time. . . .
Moving on the other demands in your letter, we disagree
with your characterization that Penthouse has “repeatedly
asked for these items since the close of escrow. In fact,
we have direct documentation otherwise, that Penthouse
asked we hold off on transferring the full list of domains
when we stood ready to do so because of an express desire
to do a few at a time. We also dispute any right you have
under the TSA to set deadlines. As you know, the
requirement is that FFN attend to these issues in the
normal course of business.155
Ballou also sent an e-mail that day to Fox and various FriendFinder team
members attaching Slaughter’s list, which stated: “Here is the list the only URL we
154
JTX 340.
155
JTX 261.
31
are not transferring is stonerfriendfinder.us. Otherwise this is a final list.”156 Ballou
admitted at trial that she was “under a lot of pressure at that time to wrap it up, to get
it done, you know, to get the team moving on the continual transfer of domains, and
I made a mistake. I didn’t look carefully enough at the list.”157 Buckheit admitted
at trial that he did not review the April 28 List.158
e. The domain transfer and subsequent events
By May 2016, FriendFinder transferred substantially all of the domains on the
April 28 List.159 After continuing disagreements between the parties, Penthouse
terminated the TSA on May 16, 2016.160 The termination notice stated that the
termination would be effective on May 31, 2016, and “[a]t such time, all property
and assets of [Penthouse] or any of its subsidiaries (including the accounting records,
intellectual property and other data and information), need to have been, or shall be,
transferred” by FriendFinder to Penthouse.161
156
JTX 255.
157
Tr. 298-299 (Ballou).
158
Tr. 41, 97-98 (Buckheit).
159
JTX 253; JTX 255; JTX 259; JTX 271; JTX 274.
160
JTX 282.
161
Id.
32
By May 29, 2016, the Disputed Domains were being directed to
penthouse.com.162 On May 29, 2016, Penthouse began to receive emails from
hornywife members inquiring why they were being redirected to penthouse.com.163
Around this time, FriendFinder noticed a decline in revenue and was receiving
complaints from affiliates that customers were having trouble logging in. Upon
investigation, FriendFinder realized that hornywife and bookofsex were being
redirected to penthouse.com.164 FriendFinder employees attempted to identify the
issue, and Buckheit expressed suspicions that the transfer of domains to Penthouse
may be the issue.165
FriendFinder contacted Fox who stated that the redirection was intentional, as
these websites were properties of Penthouse.166 Buckheit responded, “How can
these be properties of Penthouse? Were they transferred by mistake? They have
162
JTX 322.
163
JTX 289; JTX 288; JTX 287; Tr. 757 (Fox).
164
JTX 286; JTX 290.
165
JTX 308; Tr. 48 (Buckheit).
166
JTX 298.
33
nothing to do with Penthouse.”167 FriendFinder officers and employees then
reviewed the April 28 List and realized that it contained these domains.168
The next day, Ballou e-mailed Fox regarding hornywife and bookofsex stating
that they were being directed at penthouse.com even though “the Whois data still
shows Various as the owner and WayBack shows BookofSex clearly a cams.com
co-brand as of March 9th. Same thing for Hornywife.com.”169 Ballou then contacted
Penthouse’s outside counsel at Hogan Lovells and demanded that Penthouse “unlock
and return these domains to Various Inc. at once as their refusal to do so since they
have been notified has caused and will continue to cause irreparable damage as our
customers are being redirected away to penthouse.com.”170 Ballou also asked
Belous to instruct Fox to redirect the websites to FriendFinder as a “temp
solution.”171 Buckheit spoke with Fox during this time, stating that a mistake had
been made in the transfer, and Fox redirected the websites to FriendFinder servers
that same day.172
167
Id.
168
Id.
169
JTX 294.
170
JTX 302.
171
JTX 293.
172
JTX 295; Tr. 50-51 (Buckheit).
34
Over the next few days, Ballou sent Penthouse’s counsel documents
attempting to show Various’s ownership of hornywife and bookofsex. This
included: (1) a WhoIs report for hornywife showing Various as the owner; (2)
screenshots from January 2016, March 2015, and September 2011 of hornywife
showing Various in the footer and the website as a co-brand for AdultFriendFinder;
(3) a Sample Medly Insertion Order listing hornywife as a co-brand of
AdultFriendFinder; (4) a WhoIs report for boob-squad.com showing Various as the
owner; and (5) a Various letter showing intent to purchase the boob-squad.com
domain portfolio in 2009.173
Meanwhile, Holland requested WhoIs information on the Disputed Domains
from a Penthouse contractor, Lucky Smith.174 Smith answered:
173
JTX 307.
174
JTX 306. Penthouse objects to the use of JTX 306 and JTX 311 on hearsay grounds.
These documents, however, fall under an exception to the hearsay rule as they are
“Records of Regularly Conducted Activity.” See D.R.E. 803(6) (“A memorandum,
report, record or data compilation, in any form, of acts events, conditions, opinions
or diagnoses, made at or near the time by, or from information transmitted by, a
person with knowledge, if kept in the course of a regularly conducted business
activity, and if it was the regular practice of that business activity to make the
memorandum, report, record or data compilation, all as shown by the testimony of
the custodian or other qualified witness . . .”). “In order to be a qualified witness,
the witness ‘need only have knowledge of the procedures under which the records
were created’” and
must attest to the following foundational requirements of Rule
803(6): ‘(1) that the declarant in the records had knowledge to
make accurate statements; (2) that the declarant recorded
statements contemporaneously with the actions which were the
35
Short answer: Boob-Squad.us looks like the only easy
argument. Long answer pasted below. . . .
Boob-squad.us – DANNI (2003)
Boobfarm.com – ARS early, continued as a mere feeder
site in current state. Not indexed since 2008, so we know
nothing has changed. Not sure how this got on your list.
See no references to Danni, FFN or PH anywhere.
Misslilizz.com – can’t find anywhere. Shows available on
NetSol, so maybe I’m spelling it wrong. . . .
Nakedfemalebodybuilder – started as sexhit by 2005 was
a pure feeder site same in 2007 looks to have gone offline
in Jan 2014 NetSol says FFN owns it since 2004
subject of the reports; (3) that the declarant made the record in
the regular course of business activity; and (4) that such records
were regularly kept by the business.’
McCoy v. State, 89 A.3d 477 (Del. 2014)(TABLE) (quoting Palomino v. State, 2011
WL 2552603, at *3 (Del. Super. Apr. 4, 2011)) (citing Trawick v. State, 845 A.2d
505, 509-09 (Del. 2004)). At trial Holland testified that Smith was a digital
consultant and a content manager for Penthouse. Tr. 548. Belous testified that, as
general counsel and senior vice president of Penthouse, she regularly addressed
issues of intellectual property concerning assets of the company, regularly sent e-
mails to outside vendors like Kavanagh as part of that work, and kept records of
those e-mails. Tr. 688. Belous and Holland both sought information regarding
Penthouse’s ownership of certain domain names from reputable sources in their
capacities as managers of the company. Furthermore, Smith and Kavanagh could
be considered agents or servants of Penthouse in researching this information on
behalf of Holland and Belous. See D.R.E. 801(d)(2) (a statement is not hearsay if
it is offered against a party and is a statement by her agent or servant concerning a
matter within the scope of his agency or employment, made during the existence of
the relationship). Finally, these documents also are admissible to test the credibility
of Holland and Belous as to their testimony that WhoIs data is not reliable to
determine ownership of domain names. See D.R.E. 801(d)(1) (a statement is not
hearsay if the declarant testifies at the trial or hearing and is subject to cross-
examination and the statement is inconsistent with her testimony).
36
Photobookofsex.com Various set up in May of 2011.
Never did anything with it. No archives.
Photogalleryofsex.com Same. No Archives. Also
Various, May 2011 setup.175
On June 1, 2016, Belous e-mailed Edward Kavanagh of CSC to find out
information on hornywife and boob-squad.us.176 Kavanagh told Belous that boob-
squad.us was registered to Jason Quinlan in 2005, but in 2010, ConfirmID became
the owner, using a FriendFinder email address of sa@ffn.com, and in 2016, it moved
from ConfirmID to Various, using the FriendFinder e-mail of
hostmaster@ffn.com.177 Additionally, according to Kavanagh, the first hornywife
record is from 2001, where it is registered to GMCI, and it stays listed this way until
November 22, 2011, when it is changed to Various as the owner.178
Penthouse’s counsel sent a letter to FriendFinder’s counsel on June 3, 2016
asserting that the websites were not mistakenly transferred to Penthouse, but that
representatives of both entities:
heavily negotiated the list of websites to be transferred . .
. over many weeks with the final List distributed by Diana
Ballou . . . in an e-mail . . . on which not one, not two, not
three but 6 other [FriendFinder] addressees were copied.
175
JTX 306.
176
JTX 311.
177
Id.
178
Id.
37
All of the Nine Websites were included in the final List
distributed by Ms. Ballou in the April Email.179
C. Procedural History
On June 8, 2016, FriendFinder filed this action seeking a declaratory judgment
as to FriendFinder’s ownership of the Disputed Domains and injunctive relief
against Penthouse ordering the restoration of control over the Disputed Domains to
FriendFinder. The complaint also asserts that Penthouse unlawfully converted the
Disputed Domains.
On June 28, 2016, Penthouse filed its answer and counterclaims seeking its
own declaratory judgment of ownership over the Disputed Domains and damages to
compensate for the loss of the use of the Disputed Domains due to its voluntary
agreement to redirect the domains to FriendFinder websites during the course of this
action. On June 30, 2016, the parties stipulated to and this Court entered a status
quo order (“Status Quo Order”) mandating that Penthouse redirect all Disputed
Domains to FriendFinder, cooperate with any regulatory or legal obligations or any
reasonable requests from FriendFinder regarding the Disputed Domains, and refrain
from changing the source code or user interface of the Disputed Domains or
interfering with FriendFinder’s placement of advertising or receipt of advertising
revenue from the Disputed Domains. Under the Status Quo Order, FriendFinder was
179
JTX 316.
38
ordered to continue paying the domain registration fees and to provide a figure
representing the gross, unaudited revenue for the Disptued Domains on the first of
every month from August-November 2016. This Court held trial on November 30,
December 1, and December 2, 2016, and post-trial argument, fittingly for this case,
was held on February 14, 2017.
II. ANALYSIS
FriendFinder brings this action asserting that Penthouse did not acquire the
Disputed Domains under the SPA or any other agreement because these domains
were not material to the Penthouse business as it was conducted immediately prior
to the transaction. Thus, FriendFinder argues, Penthouse has converted the Disputed
Domains, and FriendFinder is entitled to an injunction restoring the Disputed
Domains to FriendFinder.
Penthouse claims the parties reached two separate, valid, binding agreements
in February and April that unequivocally grant the Disputed Domains to Penthouse.
Thus, Penthouse did not convert the Disputed Domains, and Penthouse seeks
damages to compensate for revenue lost during the pendency of this litigation while
the websites were redirected to FriendFinder.
39
A. The SPA Governs the Rights to the Disputed Domains
This Court is “[g]uided by ‘Delaware’s well-understood principles of contract
interpretation.’”180 “Under general principles of contract law, a contract should be
interpreted in such a way as to not render any of its provisions illusory or
meaningless.”181 “In a dispute involving contract interpretation, the court must first
examine the entire agreement to determine whether the parties’ intent can be
discerned from the express words used, or alternatively, whether its terms are
ambiguous.”182 “If the terms of the contract are ‘clear on their face, . . . the court
must apply the meaning that would be ascribed to the language by a reasonable third
party.’”183 “Ambiguity does not exist simply because the parties disagree about what
the contract means.”184 “Rather, contracts are ambiguous ‘when the provisions in
180
United Rentals, Inc. v. Ram Hldgs., Inc., 937 A.2d 810, 830 (Del. Ch. 2007) (quoting
HIFN, Inc. v. Intel Corp., 2007 WL 1309376, at *9 (Del. Ch. May 2, 2007).
181
Sonitrol Hldg. Co., v. Marceau Investissements, 607 A.2d 1177, 1183 (Del. 2012).
182
Comrie v. Enterasys Networks, Inc., 837 A.2d 1, 13 (Del. Ch. Sept. 4, 2003).
183
Id. (quoting True North Commc’ns, Inc. v. Publicis, S.A., 711 A.2d 34, 38 (Del. Ch.
1997)).
184
United Rentals, Inc., 937 A.2d at 830 (citing Nw. Nat’l Ins. Co. v. Esmark, Inc., 672
A.2d 41, 43 (Del. 1996); Seidensticker v. Gasparilla Inn, Inc., 2007 WL 4054473,
at *2 (Del. Ch. Nov. 8, 2007)).
40
controversy are reasonably or fairly susceptible of different interpretations or may
have two or more different meanings.’”185
The parties do not argue that there exists any ambiguity in any contract
created. Instead, they dispute which contract (the SPA) or purported contract (the
February or April e-mails) governs the dispute. Section 3.10(a) of the SPA provides
that “the Acquired Companies own or otherwise have the right to use all Intellectual
Property that is used in, and is material to, the operation and conduct of the business
of the Acquired Companies as currently conducted.”186 The definition of
“Intellectual Property” expressly includes domain names. It provides as follows:
185
Id. (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d
1192, 1196 (Del. 1992)).
186
JTX 186 ¶ 3.10(a). Penthouse argues that Section 3.10 expired at closing under
Section 7.1 of the SPA, which provides: “The respective representations and
warranties of Sellers and Buyer contained in Article III and Article IV . . . shall
terminate and be of no further force or effect as of the Closing Date . . .” Def.’s
Opening Br. 38 n. 34; JTX 186, at 23. FriendFinder responds by pointing to Section
5.10, entitled “Further Assurances,” which states: “Buyer and Sellers shall each . . .
take such further action as may be reasonably required or desirable to carry out the
provisions of this Agreement and to consummate the transactions contemplated
hereby. Upon the terms and subject to the conditions of this Agreement, Buyer and
Sellers shall each use its commercially reasonable efforts to take or cause to be taken
all actions and to do or cause to be done all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement . . .” JTX 186, at 19; Pl.’s Answering
Br. 20. I need not decide this, however, because as discussed below, the parties’
subsequent conduct evidences their intent to continue operating under the test set
out in the SPA—to only transfer those domains that were Penthouse assets at the
time of closing.
41
(a) All registered and unregistered trademarks, service
marks, trade names, trade styles and pending trademark
and service mark registration applications, including
intent-to-use registration applications; (b) all registered
and unregistered copyrights and applications for
registration thereof; (c) all domestic and foreign patents
and patent applications, (d) all Internet domain names, (e)
all trade secrets and (f) all graphic representations and
logos associated with Acquired Companies.187
Thus, the SPA anticipates that Penthouse has the right to domain names that were
“used in, and [] material to, the operation and conduct of the business of the Acquired
Companies” at the time of closing.188 Further, items (c)-(f) in the definition of
Intellectual Property are all separated by commas, suggesting that the phrase
“associated with Acquired Companies” applies to items (c)-(f). The phrase
necessarily must apply to the preceding items, because if not, there is no limitation
on the broad categories. This would lead to an absurd result that would “conflict[]
with the agreement’s overall scheme.”189 Additionally, the application of the phrase
“associated with Acquired Companies” to the broad categories listed in the
definition of Intellectual Property is consistent with the limitation already expressed
in Section 3.10—that the relevant Intellectual Property is that which is “used in, and
187
JX 186, Annex 1-Definitions, at FFN0010236.
188
JX 186, Annex 1-Definitions, at FFN0010236.
189
Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 360 (Del. 2013) (citing GMG
Capital Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012)).
42
[] material to, the operation and conduct of the business of the Acquired Companies
as currently conducted.”190 Reading these two sections together, the SPA provides
for a guiding principle in determining which domain names should be transferred to
Penthouse—only those domains that were associated with, used in, or material to the
Penthouse business at the time of closing.191
B. No Prior or Subsequent Contract Was Created
Penthouse argues that the SPA is irrelevant because the February e-mail
exchange and the April e-mail exchange create valid, binding, and enforceable
contracts to transfer the Disputed Domains.192 But, an examination of those e-mails
and the parties’ conduct reveals the parties intended to operate under the SPA’s
guidance, proceeded to operate under the SPA’s test, and understood the SPA to
grant Penthouse only those assets that were associated with, material to, or used in
the Penthouse business at the time of closing.
From the beginning, Holland was only interested in those websites that
belonged to Penthouse. In June 2014, Fox asked Canny to “generate a list of all
190
JX 186, Annex 1-Definitions, at FFN0010236.
191
While neither party argues that the language of the SPA is ambiguous, I recognize
the potential for a conflict between the three categories listed. But, no conflict exists
here because, as discussed infra, none of the Disputed Domains meets any of the
three classifications at the time of closing. See Section II.C.
192
Def.’s Opening Br. 34.
43
GMCI domains we own[.] Kelly is interested in what we have.”193 On February 15,
days before the closing, Holland e-mailed Shashoua and Ballou to express her
concern that Penthouse domains that didn’t specifically have Penthouse embedded
in the name were not easily identified.194 In this same e-mail, she asserted that
hornywife “was a Penthouse site back in the Guccione days.”195 Ballou responded
by asking Holland to prepare a list of all the websites Holland believed “are part of
the business that are not listed” for FriendFinder’s review.196 Holland agreed.197
After the closing, both sides continued operating with the understanding that
Penthouse was only entitled to those websites that were part of the Penthouse
business. On March 18, Holland e-mailed Ballou, Shashoua, and Belous the March
18 List with all of the Disputed Domains included.198 Ballou replied that she would
review the list and revert back.199 On March 21, Ballou responded that while there
were certain domains that were clearly Penthouse-related, she saw some domain
193
JTX 98; JTX 99.
194
JTX 179.
195
Id.
196
JTX 180.
197
JTX 182.
198
JTX 210.
199
JTX 211.
44
names that were clearly not Penthouse-related such as bondage.com and
streamray.com, and she would “have all of the ownerships checked.”200 Holland
did not challenge those two domains or Ballou’s plan to check ownerships. Instead,
she provided evidence of Penthouse’s ownership of certain domains she believed
belonged to Penthouse. On March 24, Holland stated that the “individual girl sites”
are associated with dannis.com, a Penthouse website, and hornywife was launched
in 1999 before the original Penthouse/FriendFinder merger by being featured
prominently in Penthouse Magazine.201 Ballou responded that FriendFinder would
rely on WhoIs ownership, and hornywife belongs to FriendFinder because it is
registered to Various.202 Holland replied by providing further arguments regarding
hornywife’s association with Penthouse. She explained that WhoIs “means nothing
at all because Various transferred URL’s when we bought it. [Hornywife] has, since
1999, been a Penthouse site.”203 Holland sent a link from 2005 showing hornywife
being directed to penthouse.com to Shashoua, Ballou, Guarnieri, and Slaughter.204
200
JTX 213.
201
JTX 216.
202
Id.
203
JTX 221.
204
Id.
45
Ballou responded by asking “Where is [hornywife] directed now?”205 Although the
parties may have disagreed about whether hornywife was a Penthouse website, both
parties understood that it necessarily must be associated with Penthouse in order to
be transferred in the transaction.
In fact, when there was any indication that Penthouse would receive websites
not associated with the Penthouse business, Holland corrected the mistake. When
Fox e-mailed Holland that Penthouse should take ownership of the entire
penthouse2010 GoDaddy account and that “slid[ing] this one past Diana” would be
“nothing short of an awesome heist,”206 Holland testified that she didn’t fully
understand at the time of the e-mail what the penthouse2010 account was and that
she “didn’t like the use of the term ‘heist.’”207 Holland told Tom that she did not
want to take ownership of any domains that did not belong to Penthouse on a
technicality.208 And Penthouse never made any effort to take control of that
account.209
205
JTX 222.
206
JTX 190.
207
Tr. 497-98.
208
Id. at 497-98, 575.
209
Id. at 575.
46
In the same vein, when Guarnieri sent a list with the Disputed Domains to Fox
and Holland on April 26, Holland responded that six domains on the list were
“seemingly, not” Penthouse’s: sexy-panty-hose-pictures.com, sexydealfinder.com,
sexyflashdeals.com, photobookofsex.com, and singlesofturkey.com.210 Guarnieri
told her these domains were listed by mistake, and he would remove them.211 Belous
responded by providing WhoIs information for five of the domains, including
photobookofsex, stating they were all owned by Various and were registered on the
same day in 2012.212
Once the domains had been transferred, and FriendFinder noticed a decline in
revenue and was notified of complaints from customers, Buckheit asked Fox “How
can these be properties of Penthouse? Were they transferred by mistake? They have
nothing to do with Penthouse?”213 Ballou contacted Fox and stated that a WayBack
search shows bookofsex and hornywife as clearly a cams.com co-brand and the
210
JX 242.
211
JTX 242; JTX 243.
212
JTX 243.
213
JTX 298.
47
WhoIs data shows Various as the owner.214 Ballou then sent Penthouse’s counsel
documents attempting to show the true ownership of the websites.215
During this time, Holland and Belous also obtained the WhoIs information for
the Disputed Domains from outside contractors. Holland learned that boob-squad.us
was a danni-related website in 2003; photobookofsex and photogalleryofsex were
set up by Various in 2011; boobfarm had not been indexed since 2008; and
nakedfemalebodybuilder had been owned by FriendFinder since 2014.216 Belous,
meanwhile, was told that boob-squad.us was registered to ConfirmID in 2010, then
registered to Various in 2016, both with FriendFinder e-mail addresses, and
hornywife had been registered to Various since 2011.217
Contrary to Penthouse’s arguments, the evidence reveals that Penthouse had
no intent to and did not enter into any separate contracts with respect to the domain
names that would be transferred to Penthouse. At all relevant times, both sides were
operating with the understanding that the SPA required FriendFinder to transfer
domain names to Penthouse and provided clear guidance for identifying the
appropriate domains to be transferred—Penthouse is only entitled to those domains
214
JTX 294.
215
JTX 307.
216
JTX 306.
217
JTX 311.
48
associated with, material to, or used in the Penthouse business at the time of
closing.218
C. Penthouse is Not Entitled to the Disputed Domains under the SPA
Having established that the parties understood the transaction to contemplate
only those domains that were associated with, material to, or used in the Penthouse
business at the time of closing, I now turn to whether any of the Disputed Domains
fall under this description by examining multiple “indicia of ownership” used by
experts in the field.
The first indicator of ownership is the WhoIs data regarding registration.
Penthouse argues that WhoIs data is not reliable because (1) this information is not
kept up to date; (2) the various entities’ website registration became commingled
during the initial Various/Penthouse merger; and (3) FriendFinder “homogenized”
the domain registration to Various for all the websites.219 But, this argument fails
because, as discussed above, Penthouse representatives themselves turned to WhoIs
218
Penthouse’s argument that the parties entered into a different contract suffers from
other infirmities. “The elements necessary to prove the existence of an enforceable
contract are: (1) the intent of the parties to be bound, (2) sufficiently definite terms,
and (3) consideration.” Otto v. Gore, 45 A.3d 120, 138 (Del. 2012) (citing
Gallagher v. E.I. DuPont De Nemours & Co., 2010 WL 1854131, at *3 (Del. Super.
Apr. 30, 2010)). Penthouse has not put forth any evidence that the parties intended
to create another agreement beyond the SPA. Additionally, it is unclear what
consideration was exchanged for any purported contract.
219
Def.’s Opening Br. 7, 25 n.25.
49
information at numerous times throughout the process to determine the ownership
of the websites.220 Also, while Penthouse did provide evidence that there may have
been discrepancies and commingling that resulted in certain Penthouse-associated
websites being registered to Various,221 Penthouse did not suggest that the registrant
information was wrong for any of the Disputed Domains, except perhaps
hornywife.222
The WhoIs data for all the Disputed Domains suggests that they were
associated with the FriendFinder business at the time of closing. All of the contested
websites, except hornywife, were purchased by FriendFinder entities after the 2007
merger of Penthouse and Various. ConfirmID purchased nakedfemalebodybuilder,
nakedwithfood, boobfarm, and boob-squad in 2009; FriendFinder purchased
bookofsex and created photobookofsex in 2011 after the Facebook litigation.223
Bookofsex has been registered to Various since 2011; photobookofsex and
photogalleryofsex were registered to FriendFinder in 2011 and then Various in 2013;
nakedfemalebodybuilder, nakedwithfood, boobfarm, and boob-squad have been
registered to ConfirmID since 2012; and missblizz has been registered to Host
220
See JTX 179; JTX 243; JTX 306; JTX 311; see supra Section II.B.
221
Def.’s Opening Br. 14 n.15; Tr. 499-501 (Holland).
222
Cf. JTX 4; JTX 251.
223
JTX 334.
50
Master, a default FriendFinder account, since 2014.224 Penthouse has not presented
any evidence that these domains were ever registered to or owned by a Penthouse-
affiliated business or entity. Hornywife, however, was registered to GMCI, a
Penthouse-associated business, from at least 2001 until 2011.225 But, in 2011,
hornywife’s registrant changed to Various and has remained registered to Various
since that time.226
The second indicator of ownership is the websites’ historical use. The inactive
websites, except boobfarm, have had no activity since 2012.227 Boobfarm has
directed traffic to other FriendFinder-associated websites since at least 2013.228
Bookofsex has been maintained as an AdultFriendFinder co-brand since 2011, and
its copyright and terms of use show Various as the owner since that time.229
Bookofsex’s Splash Page represents its particular theme; however, when the user
logs in, the content is nearly identical to the other AdultFriendFinder co-brands.230
224
Id.
225
Id.
226
Id.
227
Tr. 405-09 (Palage).
228
Id.
229
JTX 5; Tr. 125-26, 144, 162-63 (Shashoua).
230
JTX 334, Exs. 2-3.
51
Hornywife is the exception in terms of historical use because from 2005 until
2011, hornywife was directed to penthouse.com.231 In 2011, however, hornywife
became an AdultFriendFinder co-brand, and its Splash Page listed Various as the
copyright owner.232 Similarly to bookofsex, although hornywife has a unique Splash
Page, once the user logs in, its content is identical to other AdultFriendFinder co-
brands.233 Penthouse does not provide any evidence to the contrary or argue that
these websites were used by Penthouse at the time of closing.
The third and final indicator of ownership is the financing and accounting for
the websites. Bookofsex has been financed completely by Various since 2011, and
Various has recognized revenue for the website since 2011.234 Various also paid
affiliates, advertising costs, and search engine optimization costs for hornywife, and
it recognized the revenue from hornywife since 2011.235 Additionally, the internal
coding cheat sheet, received by Penthouse management, delineated the expenses and
revenues within the FriendFinder organization and grouped hornywife and
231
JTX 334.
232
Id.
233
JTX 334, Exs. 2-3.
234
JTX 5; Tr. 125-26, 144, 162-63 (Shashoua).
235
JTX 6; Tr. 155-161 (Shashoua), 398 (Palage).
52
bookofsex in the Casual Dating Silo under AdultFriendFinder.236 The back-end
acronym assigned to both hornywife and bookofsex was “Ffadult,” in line with other
AdultFriendFinder co-brands.237 Penthouse did not present any evidence that any of
the Acquired Companies recognized revenue or incurred any costs associated with
hornywife or the other Disputed Domains at the time of closing.
Although hornywife’s pre-2011 WhoIs records and use may leave some doubt
as to its proper ownership, the post-2011 WhoIs records, use, and financing make
clear that hornywife, like the other Disputed Domains, was not associated with, used
in, or material to the Penthouse business at the time of closing, and the SPA does not
contemplate its transfer to Penthouse. The indicia point to FriendFinder’s ownership
of all the Disputed Domains.238
D. FriendFinder is Entitled to the Return of the Disputed Domains
Because FriendFinder is the rightful owner of the Disputed Domains under
the SPA, Penthouse must return the domains to FriendFinder. Penthouse argues that
FriendFinder is not entitled this “extraordinary remedy” because FriendFinder has
236
JTX 76.
237
JTX 76.
238
Because I find that no agreement was formed and that the SPA controls, I need not
analyze FriendFinder’s mistake defenses or its request for reformation.
53
not met the elements required for a mandatory injunction.239 “To issue a mandatory
injunction requiring a party to take affirmative action . . . the Court of Chancery must
either hold a trial and make findings of fact, or base an injunction solely on
undisputed facts.”240 “The Court will only award a mandatory injunction in a clear
case, free from doubt.”241 In order for a movant to be entitled to a permanent
injunction, the movant must show “(1) actual success on the merits; (2) irreparable
harm; and (3) the harm resulting from failure to issue an injunction outweighs the
harm befalling the opposing party if the injunction is issued.”242 As discussed above,
after trial, FriendFinder has proven actual success on the merits because it has shown
that it rightfully owns the Disputed Domains.
Penthouse argues that FriendFinder cannot demonstrate irreparable harm
because (1) Section 8.15 of the SPA does not apply; (2) even if Section 8.15 of the
SPA does apply, it does not require an injunction; and (3) money damages can
239
Def.’s Pre-Trial Br. 44-47; Def.’s Opening Br. 50-51.
240
C&J Energy Servs., Inc. v. City of Miami Gen. Empls.’ Ret. Trust, 107 A.3d 1049,
1071 (Del. 2014).
241
ID Biomed. Corp. v. TM Techs., Inc., 1995 WL 130743, at *16 (Del. Ch. Mar. 16,
1995) (citing Video of Delaware, Inc. v. Silver Screen Video, Inc., 1984 WL 198609,
at *1 (Del. Ch. Dec. 28, 1984)).
242
Id. at *15 (citing Draper Commc’ns, Inc. v. Delaware Valley Broads., L.P., 505
A.2d 1283, 1288 (Del. Ch. 1985)).
54
adequately compensate FriendFinder for the Disputed Domains.243 Because I find
that the SPA is the governing document, Section 8.15 does apply. Section 8.15,
entitled “Injunctive Relief” states that the parties agree that irreparable harm will
result if any provision of the SPA is not performed as specified and that the parties
are able to seek an injunction to specifically enforce the terms of the agreement. 244
Although Penthouse is right that the injunction is not required under the SPA, I still
retain my discretion to grant the remedy. These domain names are assets and
property of FriendFinder, and under these circumstances, damages would not
adequately compensate FriendFinder for its losses.
Finally, Penthouse argues the balance of the equities does not favor
FriendFinder because FriendFinder’s own actions caused Penthouse to take
possession of the Disputed Domains.245 While this may be the case, this does not
prevent the Court from recognizing that allowing assets that are rightfully
FriendFinder’s to remain in the custody and control of Penthouse will harm
FriendFinder more than taking those domains that were not Penthouse’s at the time
243
Def.’s Pre-Trial Br. 45-46.
244
JTX 186, § 8.15.
245
Def.’s Pre-Trial Br. 47.
55
of closing away from Penthouse. I find that FriendFinder is entitled to an injunction
enforcing the return of the Disputed Domains against Penthouse.246
III. CONCLUSION
For the foregoing reasons, I find that the SPA controls and provides for the
transfer of domain names that are associated with, used in, or material to the
Penthouse business at the time of closing. FriendFinder has shown that under the
SPA, the Disputed Domains were associated with, used in, or material to the
FriendFinder business at the time of closing. Penthouse has not put forth any
evidence that it is entitled to any of the Disputed Domains under the SPA. Therefore,
I order Penthouse to turn over all the Disputed Domains to FriendFinder within 10
days of this opinion.
IT IS SO ORDERED.
246
FriendFinder asserts that Penthouse converted FriendFinder property. Pl.’s
Opening Br. 62. The complaint alleges that “[a]s a direct and proximate result of
PGMI’s wrongful control of the FFN Domains, FFN has suffered and/or will suffer
damages and financial injury.” Compl. ¶ 36. The relevant Disputed Domains were
turned back to FriendFinder within a day of Penthouse being notified of the transfer.
JTX 295. FriendFinder does not provide evidence of any damages or any further
harm it suffered as a result of any purported conversion.
56