Court Opinion

ID: 4316996
Source: CourtListenerOpinion
Date Created: 2018-10-01 13:13:15.760382+00
Date Added: 2024-06-11T14:45:08.382790
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

BADGER HOLDING LLC and S&E             )
BRIDGE & SCAFFOLD LLC,                 )
                                       )
                                       )
                 Plaintiffs,           )
                                       )
                                       )
      v.                               ) C.A. No. 2017-0147-SG
                                       )
                                       )
EDMUND KIRSCH,                         )
                                       )
                                       )
                Defendant.             )

                      MEMORANDUM OPINION

                      Date Submitted: June 13, 2018
                      Date Decided: October 1, 2018

Thomas E. Hanson, Jr., of BARNES & THORNBURG LLP, Wilmington,
Delaware, Attorney for Plaintiffs.

Ronald L. Daugherty, of SALMON, RICCHEZZA, SINGER & TURCHI, LLP,
Wilmington, Delaware, Attorney for Defendant.

GLASSCOCK, Vice Chancellor
      This matter is before me primarily to enforce a covenant not to compete.

The Defendant is Edmund Kirsch, an experienced participant in the scaffolding

industry. In 2012, he went to work for S&E Bridge and Scaffold, LLC (“S&E”) as

Director of Sales. At that time, he entered an employment agreement and a stock

award agreement, both of which contained essentially identical (and typical)

covenants not to compete. Kirsch was, however, unwilling to categorically forgo

competitive opportunities in the future. Consequently, he specifically negotiated a

provision in the employment agreement under which, at his voluntary termination

of employment with S&E, the company could elect to continue to pay his salary

and benefits for one year, as “severance pay.” If they failed to do so, he would be

free of the contractual covenants not to compete post-employment.

      In 2016, Kirsch began to consider leaving S&E to work for a competitor. In

October of that year, he signed an employment agreement with another scaffolding

entity, although his employment with the entity did not begin until the following

February. On January 3, 2017, Kirsch gave notice to S&E that he would terminate

his employment as of January 31. S&E declined to pay him the contractual

severance payment.

      While still at S&E in January 2017, Kirsch solicited at least one S&E

customer to give its business to his new employer. S&E was unaware of this
activity both when it declined to make the severance payments, and as of the time

Kirsch left the company on January 31, 2017.

      The Plaintiffs seek to enjoin Kirsch from competing with S&E post-

employment, for the contractual period of two years. Kirsch contends that he has

no post-employment non-compete obligations, because S&E elected not to trigger

such by failing to pay the severance that is a contractual precedent. The matter is

before me on cross-Motions for Summary Judgement. The Plaintiffs argue that

they are entitled to enforce the non-compete, regardless of severance. Primarily,

they argue that the severance provision in the employment agreement, and the

other obligations therein, terminated after four years by its own terms. They seek

to enforce the stock award agreement, which does not so terminate. I find,

however, that the parties treated the employment agreement as continuing, and that

in any event, the stock award agreement specifically incorporates the severance

provision, so that S&E’s obligation to elect between severance and a release of the

non-compete survived as of January 2017.

      The Plaintiffs also point out that Kirsch breached the non-compete prior to

the time of termination, a fact of which they were unaware until after his

employment had ended and they had chosen not to pay him severance. Notably,

Kirsch was not fired for cause. Under the facts here, and the language of the

contract, enforcement of the post-employment non-compete obligation required

                                         2
S&E to pay severance. Having decided not to make the trigger payments, S&E

cannot enforce the post-employment non-compete.

        I have found that Kirsch was free to compete after January 31, 2017. He

began doing so earlier, however, and in January he solicited business in

competition with S&E. Regardless of the fact that S&E cannot enjoin Kirsch’s

competition after January 31, 2017, the Plaintiffs are entitled to damages, if any,

for breach of Kirsch’s obligations not to compete before that time. The

determination of damages awaits a developed record. My reasoning follows.

                                  I. BACKGROUND

        A. The Parties and Relevant Non-Parties

        Plaintiff Badger Holdings, LLC (“Badger”) is a Delaware limited liability

company with a principal place of business in Waukesha, Wisconsin.1 Badger is a

holding company that owns, among other entities, Plaintiff S&E Bridge & Scaffold,

LLC.2

        Plaintiff S&E Bridge & Scaffold, LLC (“S&E”) is a New York limited

liability company with a principal place of business in Carlstadt, New Jersey.3 S&E

1
  Compl. ¶ 9. Badger changed its name from OIP Holdings LLC (“OIP”) in 2012. Aff. of Curtis
Paulsen, Jan. 26, 2018 [hereinafter “Paulsen Aff.”] ¶ 4. OIP was previously known as Safway
Holdings LLC. Aff. of Thomas E. Hanson, Jan. 12, 2018 [hereinafter “Hanson Aff.”], Ex. 5,
Phantom Class A Unit Plan.
2
  Paulsen Aff. ¶ 6.
3
  Compl. ¶ 10.
                                            3
is a premier provider of scaffolding, sidewalk bridges, and hoists for large, complex

construction projects in New York, New Jersey, and Pennsylvania.4

      Defendant Edmund Kirsch is resident of Valley Cottage, New York, and a

former Director of Sales at S&E.5 Kirsch left S&E to work for non-party DHS Fraco,

LLC (“DHS Fraco”) in early 2017, at which time the Plaintiffs filed this suit.6

      B. Relevant Facts

             1. Kirsch Joins S&E

      Kirsch joined S&E on January 20, 2012.7 At that time, he was an experienced

professional in the scaffolding industry, having previously worked as the President

of one scaffolding company and as the Sales Manager of another.8 Because of his

experience in the field, Kirsch was unwilling to enter into a non-compete agreement

with S&E that would categorically bar him from subsequently working at other,

similar companies.9     As such, Kirsch specifically negotiated his Employment

Agreement with Michael Breslin, the President of S&E.10

      The Employment Agreement contains a non-compete provision:

4
  Compl. ¶¶ 2–3.
5
  Compl. ¶¶ 3, 15.
6
  Compl. ¶ 7.
7
   Opening Br. in Support of Def. Mot. for Summ. J., Ex. A, Emp’t Agreement. Kirsch had
previously worked for Perimeter Bridge & Scaffold Co., Inc., which was acquired by S&E in
January 2012. Aff. of Colm Coen, Jan. 26, 2018 [hereinafter “Coen Aff.”] ¶ 4.
8
  See Hanson Aff. Ex. 1, Kirsch Dep. at 9:16–19, 12:25–13:3.
9
  See id. at 17:7–17.
10
   Opening Br. in Support of Def. Mot. for Summ. J., Ex. C, Kirsch Dep. at 18:14–20.
                                           4
          Kirsch shall (a) at all times during his employment, and for five (5) years
          after the termination of [his] employment . . . hold in strictest confidence
          any and all proprietary and confidential information . . . provided, that
          this restriction will not apply with respect to any such data or
          information after such data or information . . . becomes public
          knowledge or generally publicly known in the industry through no
          breach by [Kirsch]; (b) not during [his] employment and for a period of
          two (2) years thereafter, without the prior written consent of [S&E],
          either directly or indirectly, operate or perform any advisory or
          consulting services for, invest in . . . or otherwise operate or become
          associated in any capacity (including as an employee) with, any
          company, corporation, partnership, organization, proprietorship, or
          other entity which develops, manufactures, sells or distributes products
          or services in competition with [S&E] as conducted during [Kirsch’s]
          employment . . . . and (d) not at any time during [Kirsch’s] employment,
          and for a period of two (2) years thereafter, without the prior written
          consent of [S&E], contact, solicit, or entice any customer of [S&E] or
          any of [S&E] Affiliates as of the Effective Date or at any time during
          the two (2) years immediately preceding the Effective Date, or any
          prospective customer to which [S&E] made a project bid or proposal
          during such period, so as to cause such customer or prospective
          customer to cease or reduce its business with [S&E] or any of [S&E]
          Affiliates.11

The contract also contemplated severance payments from S&E to Kirsch at the time

of his leaving the company. Although the non-competition and non-solicitation

provisions in Section 3.1(b) and (d) prohibited Kirsch from competing with S&E,

under Section 5.3(c), they would be enforceable after Kirsch left the company only

11
     Opening Br. in Support of Def. Mot. for Summ. J., Ex. A, Emp’t Agreement § 3.1(a), (b), (d).
                                                 5
if S&E elected to pay Kirsch severance payments.12 If S&E did not pay Kirsch

severance, Kirsch would be free to compete.

       The Employment Agreement is governed by New York law.13 It contains an

irreparable harm provision: in signing it, Kirsch acknowledged that “a material

breach of any of these covenants may result in irreparable and continuing damages

to [his employer] for which there may be no adequate remedy at law.” 14 The

Agreement was to be effective for four years after it was signed.15 After the initial

four-year period, the Employment Agreement was subject to extension, which would

be considered “employment at will, subject to the terms of [the Employment]

Agreement;” however, the contract also provided that “absent mutual written

agreement, there is not, nor will there be, any express or implied agreement as to

[Kirsch’s] continued employment . . . after the Employment Period.”16 Kirsch

signed the Employment Agreement when he began working for S&E on January 20,

2012.17 Accordingly, Kirsch’s employment contract lasted from January 20, 2012

to January 20, 2016, and thereafter if extended.

12
   Id. § 5.3(c) (S&E “may, at its sole option, elect not to commence making [severance] payments,
in which case [Kirsch] shall have no further obligation under Sections 3.1(b), (c), and (d) following
such termination of employment.”).
13
   Id. § 7.2.
14
   Id. § 3.2.
15
   Id. § 1.
16
   Id. §§ 1, 5.1.
17
   Opening Br. in Support of Def. Mot. for Summ. J., Ex. A, Emp’t Agreement.
                                                 6
       Kirsch’s relationship with S&E was also governed by the OIP Holdings,

LLC Phantom Class A Unit Plan Notional Class A Unit Award Agreement (the

“Phantom Unit Agreement”). The Phantom Unit Agreement is governed by

Delaware law.18 The parties entered the Agreement on January 20, 2012, when

Kirsch joined S&E.19 Under the Phantom Unit Agreement, Kirsch was awarded

1,000 Class A shares in OIP Holdings, LLC (Badger’s predecessor), as part of his

employment with S&E.20

       The relevant provisions in the Phantom Unit Agreement are largely identical

to those in the Employment Agreement. The Phantom Unit Agreement contains

the same non-competition and non-solicitation provisions: it restricts Kirsch’s

involvement with companies competitive to OIP Holdings and prohibits Kirsch

from soliciting customers of OIP Holdings.21 Although it does not contain a

severance provision identical to that in the Employment Agreement, the Phantom

Unit Agreement similarly provides that Kirsch is not obligated to comply with the

non-solicitation and non-compete provisions, “following termination of

employment, to the extent [Kirsch] is not obligated to comply with the

corresponding covenant obligations in the Employment Agreement pursuant to the

18
   Hanson Aff., Ex. 5, Phantom Class A Unit Plan § 9.
19
   Hanson Aff., Ex. 1, Kirsch Dep. 20:7–18.
20
   Coen Aff. ¶ 9; Paulsen Aff., Ex. 1.
21
   Hanson Aff., Ex. 5, Phantom Class A Unit Plan § 5(a)(ii), (iv).
                                                7
last sentence of 5.3(c) in the Employment Agreement;” that is, the severance

payment provision.22 In this way, the severance provision was incorporated into

the Phantom Unit Agreement. The Phantom Unit Agreement also contains the

same irreparable harm provision as does the Employment Agreement.23

       The Phantom Unit Agreement defines OIP Holdings to include any of its

“Affiliates or direct or indirect Subsidiaries with whom the Participant has been

materially and directly involved.”24 OIP later became Badger, and S&E is a

subsidiary of Badger; thus, the Phantom Unit Agreement governs Kirsch’s

relationship with S&E and Badger.

       While employed with S&E, Kirsch held the title of Sales Manager.25 He

was responsible for “pricing, securing work for [S&E, and] making sure that the

extras were priced right and built right.”26 Kirsch worked primarily in the five

boroughs of New York, and occasionally in New Jersey.27

              2. Kirsch Joins DHS Fraco

       While Kirsch was employed with S&E, he was approached several times with

employment offers by Daniel Chirila, who was the owner of Dynamic Hoisting

22
   Id. § 5(b).
23
   Id. § 5(c).
24
   Id. § 5(f).
25
   Hanson Aff., Ex. 1, Kirsch Dep. at 16:10–21.
26
   Id. at 16:17–21.
27
   Opening Br. in Support of Def. Mot. for Summ. J., Ex. C, Kirsch Dep. at 18:21–19:6.
                                               8
Scaffolding Company, Inc. (“Dynamic”).28 Dynamic was not considered to be a

competitor of S&E at the time, but it intended to expand into the scaffolding and

hoist market, which was its reason for offering Kirsch employment.29                 Although

Kirsch met with Chirila approximately every one to two months between January

and June 2016, he stated in his deposition testimony that he told Chirila he was

happily employed with S&E and did not intend to leave.30 Over time, Chirila’s offers

“became more aggressive.”31 Eventually, in late-summer 2016, Chirila introduced

Kirsch to Armand Rainville, the CEO of Fraco, USA, Inc. (“Fraco”), a wholly-

owned subsidiary of Canadian Hoist Company, Inc. (“Fraco Parent”).32 Thereafter,

Kirsch, Chirila, and Rainville met approximately once or twice a month.33

       At some point during the course of these meetings, Kirsch decided to take

Chirila and Rainville up on their employment offer. Chirila and Rainville had

gathered labor and purchased equipment to expand into the scaffolding and hoist

market, and Kirsch was needed to “put the puzzle together.”34 During this period,

there were “a lot of changes rapidly.”35 Ultimately, Dynamic merged with Fraco to

28
   Hanson Aff., Ex. 1, Kirsch Dep. at 31:10–11; Hanson Aff., Ex. 15, Chirila Dep. at 15:24–16:1.
29
   Hanson Aff., Ex. 14, Impieri Dep. at 14:11–13; Hanson Aff., Ex. 1, Kirsch Dep. 34:23–36:4.
30
   Hanson Aff., Ex. 1, Kirsch Dep. at 33:21–23, 32:10.
31
   Id. at 34:19.
32
   Id. at 35:2–8; Hanson Aff., Ex. 6, Limited Liability Company Operating Agreement at 1.
33
   Hanson Aff., Ex. 1, Kirsch Dep. at 35:14–15.
34
   Id. at 35:23–36:5.
35
   Id. at 38:15–16.
                                               9
form DHS Fraco, LLC (“DHS Fraco”).36 Together with Chirila and Rainville,

Kirsch would run DHS Fraco, the scaffolding and hoist division of Fraco Parent.

Kirsch knew that he was not permitted to compete with S&E, but he did not tell

Chirila, Rainville, or anyone associated with DHS Fraco about his S&E non-

compete agreement.37

       The record indicates that Kirsch received a draft of the DHS Fraco Limited

Liability Company Operating Agreement (the “DHS Fraco Operating Agreement”)

in fall 2016—by November 28, 2016 at the latest—while Kirsch was still employed

with S&E.38 Kirsch, Chirila, and Rainville contemplated that Kirsch would leave

S&E to be the “branch manager” of DHS Fraco.39 At some point in fall 2016, Kirsch

also received a draft employment agreement from Chirila and Rainville.40 At that

time, he told them, “I can sign a contract but I can’t work,” because of the non-

competition agreement with S&E.41 Kirsch negotiated the DHS Fraco Employment

Agreement, and signed the Agreement on October 13, 2016.42 Kirsch did not receive

36
   Id. at 38:14–15.
37
   Id. at 39:5–6, 36:6–9.
38
   Id. at 37:23–25; Hanson Aff., Ex. 11. The original date on the signed agreement was November
28, 2016; however, the November date was later crossed out and replaced with February 3, 2017,
the date Kirsch began working for DHS Fraco. Hanson Aff., Ex. 11; see also Hanson Aff., Ex. 1,
Kirsch Dep. at 62:16–19.
39
   Hanson Aff., Ex. 10.
40
   Hanson Aff., Ex. 1, Kirsch Dep. at 41:22–25, 42:18–23.
41
   Id. at 42:12–13.
42
   Id. at 43:13–15; Hanson Aff., Ex. 8. This Agreement was with Fraco Products, Inc. Hanson
Aff., Ex. 8. A later iteration of the Fraco Employment Agreement was between Kirsch and DHS
Fraco. Hanson Aff., Ex. 10.
                                              10
compensation from DHS Fraco until February 2017, after his employment with S&E

ended.43

              3. Kirsch Leaves S&E

       On January 3, 2017, Kirsch gave S&E notice of his resignation, effective

January 31, 2017.44 In January 2017, while still working for S&E, Kirsch sent S&E

clients emails to inform them that he was moving to DHS Fraco. One such email,

sent to Peter Pavlakis of Pav-Lak Contracting, Inc. (“Pav-Lak”) on January 25, 2017,

read: “U R the best, resigned today, have an ownership agreement again with [a]

great company, all new hoists and patent on runways, lower prices, happy days are

here again.”45 Pav-Lak ultimately became a customer of DHS Fraco.46

       Before Kirsch’s employment with S&E ended on January 31, 2017,

representatives from S&E discussed with him the logistics of his leaving the

company.47 This included ensuring that he returned all company property, that he

submitted recent expenses for reimbursement, and that he was compensated for

unused vacation time.48 At no time did anyone indicate to Kirsch that he would

receive severance payments from S&E, and Kirsch never, in fact, received

43
   Hanson Aff., Ex. 1, Kirsch Dep. at 43:20–23.
44
   Coen Aff. ¶¶ 12–13.
45
   Hanson Aff., Ex. 2.
46
   Hanson Aff., Ex. 3.
47
   Opening Br. in Support of Def. Mot. for Summ. J., Ex. F, Ariza Dep. at 13:6–18:22.
48
   Id.
                                              11
severance.49 At the time Kirsch’s resignation from S&E became effective on

January 30, 2017, S&E was unaware of Kirsch’s efforts in January 2017 on behalf

of DHS Fraco.50

       On February 3, 2017, Kirsch began employment with DHS Fraco.51 DHS

Fraco is a competitor of S&E, and it is therefore also a competitor of Badger.52 After

Kirsch was working for DHS Fraco, he sent emails to approximately five of S&E’s

clients, stating that he had joined DHS Fraco and that DHS Fraco manufactures and

installs various construction equipment and scaffolding.53 At deposition, Kirsch

stated that he did not take any confidential information with him when he left S&E.54

       C. Procedural Posture

       The Plaintiffs filed this action on February 24, 2017 and brought three

counts.55 In Count I, the Plaintiffs seek declaratory judgment regarding Kirsch’s

obligations under the Phantom Unit Agreement.56 Count II alleges that Kirsch

breached the Phantom Unit Agreement.57                 In Count III, the Plaintiffs seek

preliminary and permanent injunctive relief.58 I denied a Motion to Dismiss on June

49
   Id. at 32:19–23;
50
   Coen Aff. ¶ 13.
51
   Hanson Aff., Ex. 1, Kirsch Dep. at 62:11–12.
52
   Hanson Aff., Ex. 14, Impieri Dep. at 39:3–6.
53
   Hanson Aff., Ex. 1, Kirsch Dep. at 76:12–14, 77:15–78:3; see also Hanson Aff., Ex. 4.
54
   Hanson Aff., Ex. 1, Kirsch Dep. at 90:3–5.
55
   See Compl.
56
   Id. ¶¶ 33–38.
57
   Id. ¶¶ 39–42.
58
   Id. ¶¶ 43–50.
                                              12
29, 2017. On January 12, 2018, the Plaintiffs moved for partial summary judgment

on the breach of contract issue and injunctive relief, and Kirsch moved for summary

judgment on all counts.59

                                       II. ANALYSIS

       Under Court of Chancery Rule 56, summary judgment will be granted if

“there is no genuine issue as to any material fact and . . . the moving party is

entitled to a judgment as a matter of law.”60 The moving party bears the initial

burden of demonstrating the “absence of a material factual dispute.”61 If the

moving party makes this initial showing, “the burden shifts to the nonmovant to

present some specific, admissible evidence that there is a genuine issue of fact for a

trial.”62 In reviewing a summary judgment motion, the Court “must view the

evidence in the light most favorable to the non-moving party.”63 Thus, the Court

must deny a request for summary judgment “if there is any reasonable hypothesis

by which the opposing party may recover, or if there is a dispute as to a material

fact or the inferences to be drawn therefrom.”64

59
   See Apr. 19, 2018 Oral Arg. Tr. at 26:4–7 (discussing the scope of the Plaintiffs’ Motion for
Partial Summary Judgment).
60
   Ct. Ch. R. 56(c).
61
   In re Transkaryotic Therapies, Inc., 954 A.2d 346, 356 (Del. Ch. 2008) (quoting Levy v. HLI
Operating Co., 924 A.2d 210, 219 (Del. Ch. 2007)).
62
   Id.
63
   Merrill v. Crothall-American, Inc., 606 A.2d 96, 99 (Del. 1992).
64
   In re El Paso Pipeline Partners, L.P. Derivative Litig., 2014 WL 2768782, at *8 (Del. Ch. June
12, 2014) (quoting Vanaman v. Milford Mem’l Hosp., Inc., 272 A.2d 718, 720 (Del. 1970)).
                                               13
       Where, as here, the parties have filed cross-motions for summary judgment

and have not argued that a material issue of fact exists, “the Court shall deem the

motions to be the equivalent of a stipulation for decision on the merits based on the

record submitted with the motions.”65 Nevertheless, “even when presented with

cross-motions for summary judgment, a court must deny summary judgment if a

material factual dispute exists.”66

       The sole issue to be determined here is whether there was a breach of

contract and, if so, the appropriate remedy. The Plaintiffs allege that Kirsch

breached the covenant not to compete in the Phantom Unit Agreement;

accordingly, they contend that they are entitled to injunctive relief and damages.67

The Plaintiffs have not moved for Summary Judgement on the issue of damages.

       To succeed on their breach of contract claim, the Plaintiffs must show that

there was a valid contract, breach of an obligation imposed by that contract, and

resulting damages.68 While there is disagreement about the applicability of the

Employment Agreement, there is no dispute that the Phantom Unit Agreement

applies. I will first discuss why the Employment Agreement governs. The next

65
   Ct. Ch. R. 56(h).
66
   Bank of N.Y. Mellon v. Realogy Corp., 979 A.2d 1113, 1119 (Del. Ch. 2008).
67
   Compl. ¶ 42. I note that although the Plaintiffs broadly assert that Kirsch has used S&E’s
confidential information—which, if true, would violate Section 3.1(a) of the Employment
Agreement—they failed to explain how or when that breach occurred. Accordingly, I consider
here only the covenants not to compete.
68
   VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).
                                             14
question is whether there was a breach of the relevant contracts. To answer that

question, I look to the terms of the contracts.69

       A. The Employment Agreement Applies

       The terms of the Employment Agreement between Kirsch and S&H

provided that the Agreement would be effective for four years after it was signed.

Kirsch signed the Employment Agreement on January 20, 2012; accordingly, it

was in place until January 20, 2016, after Kirsch’s original four-year employment

term was fulfilled. The actions at issue here did not occur until later in 2016.

Nevertheless, the Employment Agreement states that after the initial four-year

period, the contract is subject to extension, which will be considered “employment

at will, subject to the terms of the [Employment] Agreement.”70

       The Plaintiffs posit that the Employment Agreement does not apply because

the initial four-year term had expired and the contract was never extended in

writing.71 The Employment Agreement provides that “[a]bsent mutual written

agreement” there shall be no “express or implied agreement as to [Kirsch’s]

69
   See Ostroff v. Quality Serv. Labs, Inc., 2007 WL 121404, at *11 (Del. Ch. Jan. 5, 2007) (“A
contract’s express terms provide the starting point in approaching a contract dispute.”).
70
   Opening Br. in Support of Def. Mot. for Summ. J., Ex. A, Emp’t Agreement §§ 1, 5.1.
71
   Apr. 19, 2018 Oral Arg. Tr. at 20:20–22:1. This, they submit, means that only the Phantom Unit
Agreement applies. Id. at 22:2–4. Furthermore, the Plaintiffs assert that because there was no
extension of the Employment Agreement, Kirsch was not entitled to receive severance, and so he
was not entitled to compete on the basis of not receiving severance. Pls. Supplemental Mem. at 5.
For reasons discussed in this Opinion, I disagree with both of these contentions.
                                               15
continued employment.”72 The contract goes on to state that Kirsch’s employment

during “any extended Employment Period will be employment at will, subject to

the terms of this Agreement.”

         There is no doubt that Kirsch remained an employee after the initial term of

his Employment Agreement expired. Kirsch seamlessly continued his employment

with S&E after the four years had passed. He showed up to work every day; he

continued to perform the same job functions in the same position as Director of

Sales; between January and June 2016, he informed Chirila that he was happily

employed with S&E; he gave S&E proper notice of his resignation in January 31,

2017. On the Plaintiffs’ part, the record indicates that S&E kept Kirsch in his

position as its Director of Sales and accepted the benefits of his continued

employment. It continued to pay Kirsch his salary and to provide other benefits as

set by the terms of the Employment Agreement, notably without S&E exercising

its discretion to impose terms for Kirsch’s “compensation or benefits . . . subject to

agreement by” Kirsch, as provided in the contract after the termination of the

“initial or extended Employment Period.”

         In other words, at the termination of the initial four-year period, the

Employment Agreement contemplated a written extension or a renegotiation.

Neither occurred. Under what terms, then, was Kirsch employed? Despite the fact

72
     Opening Br. in Support of Def. Mot. for Summ. J., Ex. A, Emp’t Agreement § 5.1.
                                               16
that the parties operated as though the Employment Agreement was still in place,

the Plaintiffs argue that its provisions were void at the end of the initial period, and

that, although Kirsch continued to perform his obligations, S&E was excused from

theirs, including the severance obligation. The Plaintiffs, therefore, do not rely on

the non-compete and non-solicitation provisions of the Employment Agreement;

they seek instead to impose the identical provision under the Phantom Agreement,

which is not subject to the four-year term.

      Kirsch, by contrast, argues that the Plaintiffs, having continued to accept the

benefits of his continued performance of the Employment Agreement, are estopped

from denying their concomitant obligations thereunder. This argument appears

persuasive. I need not reach it, however, because the Phantom Unit Agreement, on

which the Plaintiffs purport to solely rely, in any event picks up the terms of the

Employment Agreement. Section 5(a) of the Phantom Agreement contains the

non-compete and solicitation covenants. Section 5(b) conditions the obligations of

those covenants: “Notwithstanding anything to the contrary set forth in this

Agreement, [Kirsch] shall not be obligated to comply with the covenant

obligations . . .following termination of employment, to the extent [Kirsch] is not

obligated to comply with the corresponding covenant obligation in the

                                          17
Employment Agreement . . .” under Section 5.3(c), the severance election

provision.73

        Reading these contracts together to the extent called for by their terms, and

in light of the conduct of the parties, it is clear that after the end of the initial period

of the Employment Agreement, the parties continued to be bound by both the non-

compete and non-solicitation provisions of the Agreements, as well as the

severance provisions referred to in both of the Agreements.

        B. Did Kirsch Breach the Employment Agreement?

                   1. While Employed With S&E

        The Employment Agreement contains a non-compete provision, which

prohibits Kirsch from “performing advisory or consulting services for, invest[ing]

in, . . . or otherwise operat[ing] or becom[ing] associated in any capacity (including

as an employee)” with any company that competes with S&E during his

employment with S&E.74 During his employment, Kirsch was also prohibited

from contacting, soliciting, or enticing S&E customers in a manner that would

cause the customer to reduce or cease business with S&E.75

        To my mind, Kirsch’s actions while employed with S&E fail to comply with

these restrictions. It is true that Kirsch’s meeting with Chirila and Rainville,

73
   Id. § 5.3(c).
74
   Id. § 3.1(b).
75
   Id. § 3.1(d).
                                            18
without more, is insufficient to constitute breach of the Employment Agreement’s

non-compete obligations. However, Kirsch breached his obligations when he

became associated with DHS Fraco in November 2016. The record demonstrates

that at that time, Kirsch, Chirila, and Rainville decided to form DHS Fraco, an

entity that would compete with S&E. Moreover, Kirsch decided to leave S&E for

DHS Fraco. These decisions are evidenced by the DHS Fraco Employment

Agreement that Kirsch signed on October 13, 2016—at which time Kirsch was still

an S&E employee, and would continue to be for more than two months.

      Additionally, Kirsch breached the Employment Agreement’s obligations

when he contacted S&E customers in January 2017. Kirsch emailed Pav-Lak on

January 26, 2017. Although by that time he had given his notice of resignation to

S&E, he was still an employee of S&E. The communication was outside the scope

of his employment with S&E; in fact, it touted DHS Fraco’s lower prices. Pav-Lak

ultimately moved its business from S&E to DHS Fraco. This is precisely the

situation that Section 3.1(d) of the Employment Agreement was designed to

prevent. Thus, for these reasons, I find that Kirsch breached the obligations

imposed by the Employment Agreement during his employment with S&E.

             2. After Leaving S&E

      The same non-compete provisions that applied during Kirsch’s employment

with S&E also applied for two years after his employment; however, Kirsch

                                         19
specifically negotiated a severance provision, which was included in the

Employment Agreement at Section 5(c). As a result of that negotiated provision,

the contractual non-compete would apply after Kirsch’s employment with S&E

had concluded only if S&E elected to pay him severance.

          On January 3, 2017, Kirsch gave S&E representatives notice of his

resignation. S&E does not contest that Kirsch gave proper notice. At that point,

under both the Employment and Phantom Unit Agreements, S&E was faced with a

choice. It could buy-in Kirsch’s obligations not to compete, by paying severance,

or it could forgo both severance and the corresponding non-compete. Kirsch had

negotiated for precisely this scenario. Section 5(3)(c) of the Employment

Agreement, as incorporated into the Phantom Agreement, provides that where

Kirsch terminates his employment after two years of service, he shall continue to

receive his salary for one year in way of severance payments:

          For the avoidance of doubt, it is acknowledged and agreed that the
          severance payments under this Section 5.3(c) are additional
          consideration given in exchange for [Kirsch’s] compliance with the
          [covenant not to compete] after termination of employment . . . and,
          notwithstanding anything to the contrary in this Agreement, the
          Company may, at its sole option, elect not to commence making such
          payments, in which case [Kirsch] shall have no further obligation [not
          to compete] following such termination of employment.76

76
     Id. § 5.3(c).
                                           20
When Kirsch left for DHS Fraco, S&E elected77 to avoid severance and forgo the

post-employment non-compete.

       S&E never indicated to Kirsch that he would receive severance, and it never

paid Kirsch severance. Although I have found that Kirsch had breached his

contractual obligations prior to his leaving S&E, S&E had no knowledge of

Kirsch’s breach when it elected not to pay him severance. The severance payment

is consideration to extend the non-compete provision after the end of Kirsch’s

employment with S&E. Under the clear language of the Agreements, S&E’s

failure to pay severance must be considered a release from the contracts’ restrictive

covenants post-employment. Kirsch is not liable for breaching his contractual

obligations after he left S&E, because S&E released him from any such

obligations.

       The Plaintiffs also allege that Kirsch has retained the Plaintiffs’ confidential

information, which if true, would be a violation of Section 3.1(a) of the

Employment Agreement.78 The Plaintiffs have not identified any of Kirsch’s

actions that utilize confidential information. Instead, they argue that the very act of

soliciting and negotiating with S&E customers on DHS Fraco’s behalf must utilize

77
   This election is triggered regardless of whether it resulted from a conscious decision or by
oversight. S&E would contractually trigger the non-compete by “commencing” severance
payments, which it never did. See id.
78
   Compl. ¶ 37.
                                              21
the Plaintiffs’ confidential information, but they point to no record evidence to

support that Kirsch actually used the Plaintiffs’ confidential information.79 Merely

soliciting and negotiating with S&E’s customers, without more, is not a per se use

of S&E’s confidential information. If it were, I note, the severance and non-

competition election, discussed at length above, would be largely illusory. For

these reasons, based on the evidence of record, I cannot find that the Plaintiffs have

met their burden to demonstrate that Kirsch used their confidential information.

Accordingly, Kirsch’s Motion for Summary Judgment as it pertains to his post-

employment conduct is granted.

          C. Did Kirsch Fulfill His Obligations Under the Phantom Unit Agreement?

          In addition to the Employment Agreement, Kirsch’s relationship with S&E

was also governed by the Phantom Unit Agreement. The Phantom Unit

Agreement was executed on January 20, 2012, when Kirsch joined S&E. The

Phantom Unit Agreement contains the same non-compete provision as does the

Employment Agreement: it prohibits Kirsch from “performing advisory or

consulting services for, invest[ing] in, . . . or otherwise operat[ing] or becom[ing]

associated in any capacity (including as an employee)” during his employment

with S&E or for two years thereafter.80 Likewise, it contains the same non-

79
     See Pls. Answering Br. in Opp’n to Def.’s Mot. for Summ. J. at 27.
80
     Hanson Aff. Ex. 5, Phantom Class A Unit Plan § 5(a)(ii).
                                                 22
solicitation provision as the Employment Agreement, which prohibits Kirsch from

contacting, soliciting, or enticing S&E customers in a manner that would cause the

customer to reduce or cease business with S&E.81 The Phantom Unit Agreement

also incorporates the Employment Agreement’s severance provision; S&E could

either pay Kirsch severance or he would be entitled to compete.

       Because the non-competition, non-solicitation, and severance provisions

were essentially the same in the Phantom Unit Agreement as in the Employment

Agreement, my reasoning from above applies to the Phantom Unit Agreement as

well.82 To the extent that Kirsch engaged in competitive behavior by joining DHS

Fraco while employed with S&E, Kirsch breached the obligations of the Phantom

Unit Agreement. Furthermore, Kirsch breached the obligations of the Agreement

when he solicited at least one S&E client, Pav-Lak, for DHS Fraco’s benefit while

employed with S&E. Nonetheless, S&E elected not to pay Kirsch severance.

Thus, the obligations of the Phantom Unit Agreement did not continue after Kirsch

left S&E.

81
  Id. § 5(a)(iv).
82
  The Plaintiffs argue that because the Employment Agreement is not applicable, neither is the
severance payment under the Phantom Unit Agreement. See Apr. 19, 2018 Oral Arg. Tr. at 22:19–
23:14. For reasons I have already discussed, I reject that argument.
                                             23
       D. Remedy

               1. Injunctive Relief

       The Plaintiffs seek an injunction to prevent Kirsch from working for DHS

Fraco.83 To succeed, they must show: (1) actual success on the merits; (2)

irreparable harm; and (3) that the balance of hardships favors the Plaintiffs.84

       The Plaintiffs have shown that Kirsch breached the non-compete covenants

of the Employment and Phantom Agreements during, but not following, his

employment. Because the non-compete obligation terminated with S&E’s decision

not to pay severance, no injunction is warranted.85

               2. Damages

       The Plaintiffs are entitled to damages, if any, for the breaches of the non-

compete covenants prior to January 31, 2018. The record is bare of any evidence

of damages.86 To the extent that damages exist, my findings require that those

damages be limited to Kirsch’s breach of contract during his employment at S&E,

since his contractual obligations terminated when he was not paid severance after

he left S&E on January 30, 2017.

83
   Compl. ¶ 46.
84
   N. River Ins. Co. v. Mine Safety Appliances Co., 105 A.3d 369, 380 (Del. 2014).
85
   As discussed earlier, I have granted Kirsch’s Motion for Summary Judgment regarding the
allegation that Kirsch violated his contractual confidentiality obligations. It follows logically that
to the extent the Plaintiffs seek an injunction to prevent Kirsch from using their confidential
information, that injunction must be denied.
86
   At oral argument, the Plaintiffs clarified that they had moved for Summary Judgment on the
breach of contract claim and injunctive relief, but that they would like a separate hearing on
damages. Apr. 19, 2018 Oral Arg. Tr. at 26:4–7.
                                                 24
      The parties should confer and inform me whether further proceedings are

necessary regarding damages.

                               III. CONCLUSION

      For the foregoing reasons, the Plaintiffs’ Motion for Summary Judgment is

granted in part and denied in part, and the Defendant’s Motion for Summary

Judgment is granted in part and denied in part. The parties should submit an

appropriate form of order.

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