IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
KEVIN BROWN, STEVEN LAMB, ) and CHRIS BERTRAND, ) ) Plaintiffs/Counterclaim ) Defendants, ) ) v. ) C.A. No. 2021-0262-KSJM ) COURT SQUARE CAPITAL ) MANAGEMENT, L.P., COURT ) SQUARE CAPITAL GP, LLC, and ) COURT SQUARE CAPITAL GP III, ) LLC, ) ) Defendants/Counterclaim ) Plaintiffs. )
POST-TRIAL MEMORANDUM OPINION
Date Submitted: October 27, 2023 Date Decided: December 15, 2023
Patricia L. Enerio, Jamie L. Brown, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Jacob W. Buchdahl, Shawn J. Rabin, Raj Mathur, SUSMAN GODFREY L.L.P, New York, New York; Counsel for Plaintiff and Counterclaim Defendant Kevin Brown.
P. Clarkson Collins, Jr., K. Tyler O’Connell, Samuel E. Bashman, MORRIS JAMES LLP, Wilmington, Delaware; Steven B. Feirson, Alan D. Berkowitz, J. Ian Downes, DECHERT LLP, Philadelphia, Pennsylvania; Counsel for Defendants and Counterclaim Plaintiffs Court Square Capital Management, L.P., Court Square Capital GP, LLC, Court Square Capital GP III, LLC.
McCORMICK, C. Plaintiff Kevin Brown was a partner at Court Square Capital Management,
L.P, and received carried interest in two of Court Square’s funds during his tenure
with the company. He resigned from Court Square in 2016 to join MSD Capital, and
Court Square continued making carried interest payments to Brown for years after
his resignation. Beginning in 2019, however, other employees left Court Square to
join MSD. Court Square sent letters accusing Brown and the other former employees
of breaching non-compete provisions in the LLC agreements that govern their rights
to carried interest. The letter campaign escalated, Court Square ceased making
carried interest payments, and the former employees brought this suit to enforce their
rights under the LLC agreements. Court Square settled its claims against all the
former employees except Brown, against whom Court Square asserted counterclaims
for breach of non-compete and confidentiality provisions in the LLC agreements. This
post-trial decision enters judgment for Brown on all claims and counterclaims.
I. FACTUAL BACKGROUND
Trial took place over two days. As reflected in the Joint Schedule of Evidence
submitted by the parties, the record comprises 527 joint trial exhibits, trial testimony
from five fact witnesses, deposition testimony from two additional fact witnesses and
one expert witness, and 33 stipulations of fact in the amended pre-trial order.1 These
are the facts as the court finds them after trial.
1 C.A. No. 2021-0262-KSJM, Docket (“Dkt.”) 182, Joint Schedule of Evid.; Dkt. 161,
Amended Pre-Trial Stipulation and Order (“Am. PTO”). This decision also cites to: trial exhibits (by “JX” number); the trial transcript, Dkts. 168–69 (by “Trial Tr. at” page, line, and witness); the post-trial oral argument, Dkt. 181 (by “Post-Trial Oral Arg. Tr. at” page, line, and witness); and the deposition transcripts of Kevin Brown, A. Court Square And Brown
Court Square is a middle-market private equity firm that was spun off from
Citicorp Venture Capital in 2006.2 Court Square manages ten-year funds.3 The funds
invest their assets over a five-year period and then “harvest” those investments
during the succeeding five years.4 The typical size of an investment for Court Square
is between $150 million and $3 billion.5
Two of Court Square’s funds—Court Square Capital GP, LLC (“Fund II”) and
Court Square Capital GP III, LLC (“Fund III”)—are defendants in this case. Funds II
and III each made approximately 20 investments.6 Funds II and III are currently
harvesting their investments.7
Court Square invests in four sectors, also called “verticals”: business services,
healthcare, technology, and industrials (a “grab bag of things that don’t fit anywhere
Michael Delaney, Steven Lamb, Thomas McWilliams, Anthony Mirra, Charles Moore, and Joseph Silvestri (by the deponent’s last name and “Dep. Tr. at” page and line). 2 Trial Tr. at 56:3–5 (Bertrand); id. at 314:11–18 (Silvestri).
3 Id. at 315:8–15 (Silvestri).
4 Id. at 315:8–15 (Silvestri).
5 Id. at 315:16–21 (Silvestri).
6 Id. at 321:2–10 (Silvestri) (discussing Fund II); id. at 322:1–7 (Silvestri) (discussing
Fund III). 7 Id. at 321:6–10 (Silvestri) (discussing Fund II); id. at 322:1–7 (Silvestri) (discussing
Fund III).
2 else[]” like manufacturing companies).8 Court Square personnel are assigned to one
of four verticals.9
At Court Square, investment professionals above the entry-level associate
position—vice presidents, principals, partners, and managing partners—receive a
carried interest or “carry” in the funds.10 Carried interest is a “performance fee . . .
paid based on the performance of the fund, i.e., how successful has the fund been.”11
The board of managers of each fund determines the allotment of carried
interest points.12 The process works as follows: once the profits come to the fund,
they are placed in escrow and ultimately distributed.13 The amount each fund
member receives from the distribution is based on the member’s vesting status.14 A
member is vested 20% each year and thus fully vested after five years.15
Brown worked in the industrials vertical as Vice President.16 Court Square
promoted Brown twice: to principal in 2008, and to partner in 2012.17 Brown received
8 McWilliams Dep. Tr. at 17:20–20:10, 22:5–11.
9 See Trial Tr. at 319:9–320:1 (Silvestri).
10 Delaney Dep. Tr. at 42:7–15.
11 Mirra Dep. Tr. at 51:21–52:1.
12 Trial Tr. at 323:8–10 (Silvestri).
13 Id. at 323:11–22, 324:20–22 (Silvestri).
14 Id. at 323:14–324:15 (Silvestri).
15 Id. at 323:23–324:2 (Silvestri).
16 See id. at 145:17–146:17 (Brown).
17 Brown Dep. Tr. at 13:20–25, 14:8–17; Am. PTO ¶ 19.
3 excellent reviews during his tenure.18 Court Square awarded Brown carried interest
in Funds II and III.19 At Court Square, Brown satisfied all contractual requirements
to earn and retain his carried interest.20
On June 3, 2016, Brown left Court Square to join MSD,21 the family investment
office of Dell Technologies Founder, Chairman, and CEO Michael S. Dell.22 Because
Brown resigned and was not terminated for cause,23 absent breach of the LLC
Agreements (discussed and defined below), he was entitled to receive payments on
carried interest that had vested before he resigned.24
B. The Restrictive Covenants
Funds II and III are governed, respectively, by the “Fund II LLC Agreement”
and the “Fund III LLC Agreement” (collectively the “LLC Agreements”).25 The Fund
III LLC Agreement governs most of the carried interest at issue in this case.26
18 JX-501.
19 Am. PTO ¶ 20.
20 Trial Tr. at 394:6–11 (Silvestri).
21 Am. PTO ¶ 27.
22 See Lamb Dep. Tr. at 44:25–45:6.
23 See Am. PTO ¶¶ 27–28; Trial Tr. at 325:15–22 (Silvestri); JX-2 (“Fund II LLC Agr.”)
§ 5.7(c); JX-3 (“Fund III LLC Agr.”) § 5.7(c). 24 Trial Tr. at 325:15–22 (Silvestri); Fund II LLC Agr. § 5.8(a); Fund III LLC Agr. §
5.8(a). The LLC Agreements specify that a member who resigns is still entitled to vested carried interest, but a member who is terminated for cause is not entitled to vested carried interest. Fund II LLC Agr. § 5.8(a); Fund III LLC Agr. § 5.8(a). 25 See Am. PTO ¶ 20.
26 See Dkt. 171 (“Court Square’s Post-Trial Opening Br.”) at 64 & n.198 (“All of the
payments that have been withheld by Court Square relate to Fund III, and there is no expectation of any future payments under Fund II.” (citing JX-510; JX-445)).
4 The LLC Agreements contain non-compete provisions.27 These provisions,
however, do not ban former employees from working in private equity for a period or
place them on garden leave. To the contrary, the LLC Agreements provide that “in
no event shall this Section 5.14(a) be construed in of itself, as prohibiting a Member
from . . . obtaining employment with, or investing in, a fund or any entity involved in
similar activities as” Court Square.28
Rather than imposing a blanket non-compete restriction, the LLC Agreements
contain “Non-Compete Provisions” prohibiting terminated employees, for a period of
one year, from acquiring a direct or indirect interest in an entity defined as an
“Investment Opportunity” and set out on a “Deal Sheet” prepared by Court Square at
the time of the employee’s departure.29 The LLC Agreements deem someone to have
acquired an interest in an Investment Opportunity if the terminated member
“receives any form of direct or indirect fee, payment or other compensation based on
the rendering of investment advice to a third party regarding such Investment
Opportunity.”30
27 Fund II LLC Agr. §§ 5.14(a), (c); Fund III LLC Agr. §§ 5.14(a), (c).
28 Fund II LLC Agr. § 5.14(a); Fund III LLC Agr. § 5.14(a) (same but referencing
Section 5.14 entirely, not just Section 5.14(a)). 29 Fund II LLC Agr. § 5.14(a); Fund III LLC Agr. § 5.14(a) (same but adding the
Investment Opportunity must be “actively considered”). 30 Fund II LLC Agr. § 5.14(a); Fund III LLC Agr. § 5.14(a).
5 The LLC Agreements also contain nearly identical “Confidentiality Provisions”
prohibiting current and terminated members from disclosing information related to
Court Square that is “not generally known to or available for use by the public.”31
The Non-Compete Provisions and Confidentiality Provisions are quoted more
fully in the Legal Analysis.
C. The Deal Sheet And Challenged Deals
On June 10, 2016, Court Square emailed Brown a draft separation
agreement.32 As contemplated by the LLC Agreements, on June 15, 2016, Court
Square Managing Partner Joseph Silvestri emailed Brown a “Deal Sheet.”33 The Deal
Sheet listed approximately 400 companies.34 On a weekly basis, Court Square
prepared a list of companies that it was actively considering.35 The Deal Sheet was
not limited to companies listed as actively considered on the weekly tracker.36 The
31 Fund II LLC Agr. § 1.6 (defining “Confidential Information”); Fund III LLC Agr.
§ 1.6 (same). 32 JX-84.
33 JX-86.
34 Id.
35 See McWilliams Dep. Tr. at 57:8–12; see, e.g., JX-100, JX-157.
36 See, e.g., compare id. at 8 (listing “Rinker Materials” on Brown’s Deal Sheet), with,
JX-56 at 1 (Dec 28, 2015 email stating, “we went ‘pencils down’ [on Rinker] a few weeks ago”); compare JX-86 at 7 (listing “Polynt” on Brown’s Deal Sheet), with, JX- 52 (Nov. 2, 2015 weekly deal sheet removing Polynt from pipeline), JX-76 (May 10, 2016 article stating Polynt was acquired by Black Diamond Capital Management, LLC and Investindustrial).
6 Deal Sheet included Zodiac Pool Systems, Inc. (“Zodiac”) and Hayward Industries,
Inc. (“Hayward”).37
1. Zodiac
Brown developed an interest in pool manufacturers while at Court Square.38
In the first half of 2016, Brown and employees at Court Square researched Zodiac,
which they expected would go on the market later that year.39 Zodiac’s sale process
kicked off in May, when Credit Suisse started to reach out to sponsors, and Brown
and others at Court Square attended a presentation by Zodiac’s management.40
After Brown left Court Square and joined MSD, Brown remained interested in
the pool industry, so he participated in the first part of Zodiac’s sale process. 41 MSD
was not seriously interested in Zodiac, which already was owned by another private-
equity firm; unlike Court Square, MSD focuses on acquiring family-led or family-
owned businesses.42 MSD witnesses credibly testified that MSD, like other private-
equity firms, would sometimes participate in a sales process for companies MSD had
no intention of acquiring to gain insight into an industry, and MSD was pursuing this
strategy as to Zodiac.43
37 Am. PTO ¶ 30; JX-86.
38 Brown Dep. Tr. at 17:24–25, 45:15–23.
39 Trial Tr. at 154:12–18 (Brown); see JX-74 at 1.
40 JX-74 at 1; see JX-80.
41 Am. PTO ¶ 32.
42 See Trial Tr. at 185:14–187:23 (Brown).
43 See, e.g., Moore Dep. Tr. at 224:14–225:5 (testifying that “many firms . . . from time
to time” “submit an indication of interest . . . to get more information in the second
7 Credit Suisse sent potential buyers a confidential information presentation in
late June and set a deadline of July 19, 2016, to submit indications of interest.44 Both
Court Square and MSD analyzed Zodiac in the weeks that followed. Court Square
submitted a nonbinding, preliminary bid to acquire Zodiac.45 Court Square did not
make it to the next round of bidding.46 By July 26, 2016, Court Square had removed
Zodiac from its weekly deal sheet.47
MSD did not bid by the July 19, 2016 deadline.48 Brown did not know whether
Court Square had bid on Zodiac.49 He testified, however, that if Court Square was on
the margin as a bidder, he did not want his “bid to somehow knock them out and
interfere with their ability to pursue an investment in Zodiac.”50
Credit Suisse asked to speak to Brown two days after the deadline.51 During
the conversation, Credit Suisse told Brown that Court Square was “not moving
round about the industry in general”); JX-106 at 6 (Court Square memo: “We intend to submit a bid for Polynt primarily to get a management meeting and use as a learning experience for our broader work on the composites industry, including the upcoming sale process for Ashland’s composites business.”). 44 JX-99; JX-117.
45 See JX-432, Defs.’ Response to Pls.’ Interrogatory 22.
46 Id.; JX-124 at 1 (Court Square’s Griffin Naylor to Deutsche Bank: “unfortunately
we didn’t make it to the next round on this one”). 47 See JX-123 at 1 (“Can you remove Zodiac [from] the deal sheet[.]”).
48 See Trial Tr. at 203:21–204:1 (Brown).
49 Id. at 201:7–21 (Brown).
50 Id. at 201:12–15 (Brown).
51 JX-118.
8 forward in the process.”52 The next day, MSD submitted a nonbinding indication of
interest in Zodiac.53 MSD, however, declined Zodiac’s invitation to a management
presentation it was hosting in Los Angeles.54 Neither Brown nor MSD acquired any
interest in or received any compensation from Zodiac.55
2. Hayward
Hayward came on the market in early 2017, and both Court Square and MSD
pursued the opportunity.56
Goldman Sachs led the process for Hayward. In late March 2017, Goldman set
a deadline of April 13, 2017, for preliminary bids.57 Court Square submitted an
indication of interest to acquire Hayward for $1.7 billion.58 MSD did not submit an
indication of interest before the April 13 deadline.59
52 Trial Tr. at 204:8–9 (Brown).
53 JX-120 (Brown emailing Credit Suisse “our formal IOI for Zodiac” at 6pm on July
22, 2016); JX-116 (IOI dated July 19, 2016). 54 See JX-127 at 2 (Brown discussing Zodiac: “They were not very accommodating in
terms of scheduling the mgmt mtg and gave us a ‘take or leave it’ option so we chose the latter.”). 55 Am. PTO ¶ 33.
56 Id. ¶¶ 34–35.
57 JX-145 (process letter); see also JX-140 at 1 (March 21, 2017 email from Barclays
noting “Hayward process has kicked off”). 58 Am. PTO ¶ 34; Trial Tr. at 80:1–4 (Bertrand).
59 See Am. PTO ¶ 35.
9 On April 19, 2017, Court Square’s Chris Bertrand received a call from Goldman
stating it would need to increase its bid to proceed.60 When Silvestri heard the news,
he was asked by Silber whether Court Square was “out.”61 Silvestri responded
“Yes[.]”62 In this litigation, Court Square claimed that it intended to re-group and re-
strategize as to Hayward after April 19, 2017, but that is not what Silvestri told Silber
at the time. Rather, Silvestri stated that he did not “want to line up to compete” with
the other bidders in the process.63 Moreover, Silvestri cleared Silber to consult with
other bidders. Silber asked: “[I]f I get a call from one of [the other bidders] to
participate then you are Ok with that?”64 Silvestri replied: “[N]o problem.”65 Court
Square then deleted Hayward from its internal weekly deal sheet as of May 1, 2017.66
These are not the actions of an entity that had a continued interest in the Hayward
transaction.
On May 25, 2017, along with two other investors, MSD made a successful bid
for Hayward.67
60 See Trial Tr. at 119:18–120:4 (Bertrand); JX-156 at 2 (Apr. 19, 2017 email from
Bertrand stating Goldman received higher bids). 61 JX-156 at 1–2.
62 Id.
63 Id. at 1.
64 Id.
65 Id.
66 JX-157 at 2 (Hayward Industries listed in “Pipeline Deletions”).
67 Am. PTO ¶ 35; JX-158.
10 Brown’s non-compete with Court Square expired on June 3, 2017.68 A few
weeks later, on June 19, 2017, MSD publicly announced its acquisition of Hayward.69
The press release identified Brown as leading the effort.70
After the press release came out, several Court Square employees
congratulated Brown on the deal.71
The acquisition was not completed until August 2017.72 Brown was awarded
carried interest with respect to that investment after the acquisition closed, which
was over a year after he left Court Square.73
D. The Heads-Up Memos
After leaving Court Square, Brown emailed his former Court Square associate,
Bertrand, asking for documents called “heads-up memos” or “HUMs.”74 HUMs are
one or two-page documents prepared by a Court Square investment professional to
analyze potential investments.75 Brown wanted old HUMs to “use as a template[.]”76
68 Am. PTO ¶ 36.
69 JX-165 (CCMP Capital and MSD Partners, L.P. to Acquire Hayward Industries,
Business Wire (June 19, 2017)). 70 Id.
71 See JX-164 (Richard Walsh congratulating Brown); JX-163 (Bertrand congratulating Brown). 72 See JX-167 at 2; Am. PTO ¶ 38.
73 Am. PTO ¶ 38.
74 Brown Dep. Tr. at 116:8–15.
75 Trial Tr. at 93:1–16 (Bertrand).
76 Brown Dep. Tr. at 116:8–15.
11 Brown testified that he did not ask for or expect to receive confidential information
from Bertrand.77
Bertrand responded (using his personal email), providing Brown (on Brown’s
personal email) with seven HUMs.78 Bertrand selected HUMs that Brown had co-
authored and in which Brown had been “intimately involved,” meaning that he was
already aware of the substance of the memos.79 Brown forwarded the HUMs to an
associate at MSD.80 Brown testified that he instructed the employee to use the HUMs
to create a formatting template.81
None of the investment opportunities discussed in the HUMs were
“actionable.”82 Each were either sold or Court Square had long since stopped
considering the investment.83 This was verified against Court Square’s internal deal
77 Trial Tr. at 191:22-192:7 (Brown).
78 JX-106.
79 Id. at 94:14–95:22 (Bertrand); see JX-106 (listing Brown as a co-author on all seven
HUMs). 80 JX-106.
81 Trial Tr. at 194:7-11 (Brown).
82 Id. at 95:4–22 (Bertrand).
83 The HUMs were for seven companies: Rinker, InterWrap, Inc, Polynt Group, Distribution International, Inc, U.S. Pipe, PLZ Aeroscience, and Plaskolite. Six of the companies on the HUMs had been acquired. JX-16 (Dec. 15, 2014 article stating Distribution International, Inc. was acquired by Advent Intentional); JX-32 (July 31, 2015 article stating PLZ Aeroscience was acquired by Pritzker Group Private Capital); JX-53 (Nov. 6, 2015 article stating Plaskolite was acquired by Charlesbank Capital Partners); JX-65 (Feb. 24, 2016 article stating InterWrap was acquired by Owens Corning); JX-21 (Apr. 15, 2016 article stating U.S. Pipe was acquired by Forterra Building Products); JX-76 (May 10, 2016 article stating Polynt was acquired by Black Diamond Capital Management, LLC and Investindustrial). Court Square stopped considering Rinker Materials as an investment opportunity in late 2015. JX-
12 tracker. According to the tracker, none of the companies discussed in the HUMs were
“under consideration” at the time Bertrand sent them to Brown.84
Generally, Court Square did not treat HUMs as super confidential. Court
Square executed non-disclosure agreements, or “NDAs” with companies in which it
was contemplating an investment, including companies that were the subject of the
HUMs sent to Brown.85 The process by which Court Square entered into and
executed NDAs, however, was “informal.”86 There was no system or program tracking
which NDAs were in effect and which had expired.87 The company did not segregate
or restrict access to the information received pursuant to the NDAs. They did not
destroy or archive the documents after Court Square ceased considering the
investment, despite the fact that each NDA required Court Square to do so.88 There
56 at 1 (Dec 28, 2015 email stating, “we went ‘pencils down’ [on Rinker] a few weeks ago”); see also Moore Dep. Tr. 181:15–182:9 (observing that it would be “rare” for a PE firm to make an investment on information that is “more than a year old”); Trial Tr. at 431:13–17 (Silvestri) (agreeing that Court Square would want the “most up-to- date financial information[]” when making an investment); Delaney Dep. Tr. 156:15– 157:7 (same) 84 JX-100; Trial Tr. at 98:7–22 (Bertrand).
85 Trial Tr. at 65:14–16 (Bertrand); Trial Tr. at 329:1–9 (Silvestri); JX-22 (Rinker
NDA), JX-41 (InterWrap, Inc. NDA), JX-30 (Polynt Group NDA), JX-10 (Distribution International, Inc. NDA), JX-27 (U.S. Pipe NDA), JX-17 (PLZ Aeroscience Corp. NDA), JX-24 (Plaskolite NDA). 86 Trial Tr. at 65:17–66:1 (Bertrand).
87 Id. at 126:2–13, 132:22–133:7 (Bertrand).
88 JX-22 § 4.1 (Rinker NDA), JX-41 ¶ 7 (InterWrap, Inc. NDA), JX-30 § 7 (Polynt
Group NDA), JX-10 at 2 (Distribution International, Inc. NDA), JX-27 ¶ 5 (U.S. Pipe NDA), JX-17 ¶ 4 (PLZ Aeroscience Corp. NDA), JX-24 at 2 (Plaskolite NDA); Trial Tr. at 137:14–138:2 (Bertrand) (“Q. From your experience at Court Square, did you ever take any action for any of the companies that you worked on that had NDAs to
13 were so many HUMs “sitting there on Court Square’s servers[]” that Silvestri testified
that he “didn’t even bother trying to count them[.]”89
Court Square made no effort to argue that the information contained in the
HUMs was non-public or not otherwise known to Brown. Court Square’s expert
testified that it was “certainly possible” that the information in the HUMs was
accessible to Brown through other channels.90 And Silvestri testified that the
financial information found in the HUMs is usually disseminated to many other
private equity firms.91
move any of the confidential information into an archival or backup system for record- retention purposes as opposed to just always being publicly available to the group? A. Not in my time with the firm. There was one shared drive. It was organized by company name, various subfolders. We put everything in there, and after getting a return or destroy notification, we would not, in my experience, distinguish, right, we didn’t kind of firewall some information as archived, some as not. It’s just all commingled forever.”); see also id. at 23:8–17 (Lamb) (“During my tenure there, there wasn’t really a difference between how the firm stored information on investment opportunities that it had passed on or wasn’t considering versus those that it was considering. I think everything was stored on a cloud-based shared drive that the firm -- at least all the investment professionals had access to and it was organized by company or deal so each company or deal had a folder and a bunch of sub-folders containing information that you could access.”). 89 Trial Tr. at 432:8–20 (Silvestri).
90 See Moore Dep. Tr. 301:15–302:19.
91 See Trial Tr. at 429:13–430:15 (Silvestri) (“Q. And so for a company Court Square
is interested in purchasing, there could be 100 bidders out there that are interested in purchasing the company in that initial phase. Right? A. That’s possible, yes. Q. And the company that is distributing the material, the CIPs that contain confidential information, may go out to a hundred different private equity firms across the world. Right? A. All under an NDA, yes.”).
14 E. Court Square Ceases Payments To Brown.
Beginning in 2019, three years after Brown’s departure from Court Square, a
handful of employees left Court Square to join MSD. The first was Bertrand, who left
Court Square in March 2019.92 Managing partner John Civantos left shortly after.93
Steven Lamb,94 Griffin Naylor,95 and Dan Ferris,96 followed around July 2020.
Actively concerned about a mass employee exodus after the July 2020
resignations,97 Court Square began to craft a legal strategy targeting Brown and the
other former employees, who they referred to as “MSD refugees.”98 On August 4,
2020, Court Square managing partner David Thomas sent CFO Anthony Mirra an
all-caps email stating: “NEED EXACT DATE OF BROWN’S RESIGNATION. ALSO
NEED DEAL LIST WE GAVE HIM.”99 The email included a link to the more-than-
three-year-old press release announcing the Hayward transaction and Brown’s
involvement in that deal.100
92 Bertrand Dep. Tr. at 36:17–21; JX-225. 93 See JX-184 at 1–2.
94 JX-238.
95 JX-236.
96 See id.
97 See, e.g., Trial Tr. at 514:23-515:6 (Delaney); JX-235.
98 JX-390 at 1 (entry for CSCPPriv013) (8/8/20 email from Mirra to Delaney and Court
Square’s counsel with the subject line: “How is your evaluation of MSD refugees going?”). 99 JX-252.
100 Id.
15 Court Square’s legal strategy led to a letter campaign. On September 4, 2020,
Court Square sent a letter to Brown raising a concern that Brown violated the LLC
Agreements through the Hayward transaction.101 Court Square sent a similar letter
to Bertrand102 and became increasingly aggressive in negotiations with Lamb
concerning the terms of his departure.103 The exchanges escalated, and Court Square
ultimately ceased making carried interest payments to Brown, Bertrand, and
Lamb.104
F. This Litigation
In March 2021, Brown, Bertrand, and Lamb filed this suit asserting claims for
breach of the LLC Agreements to enforce their rights to carried interest payments.105
Lamb and Bertrand both reached settlements with Court Square, leaving Brown as
the sole remaining plaintiff.106
On May 13, 2021, Court Square asserted counterclaims against Brown, which
Court Square amended twice.107 As amended, Court Square asserts claims for breach
of contract (Counterclaim I) and declaratory judgment (Counterclaim II).108
101 JX-274.
102 JX-313.
103 JX-306; JX-311; JX-312; JX-327.
104 PTO ¶¶ 50–52; Dkt. 97 ¶ 17 (Amended Answer).
105 See Dkt. 1.
106 Am. PTO ¶¶ 14, 16.
107 See Dkt. 97 (Second Am. Counterclaims).
108 Id. ¶¶ 95–103.
16 Brown moved to dismiss Court Square’s counterclaims, arguing that Court
Square’s claims were time-barred or failed to state a claim.109 The court granted
in part, and denied in part, Brown’s motion to dismiss Court Square’s counterclaims
on March 22, 2022.110 The court held that “any claim seeking relief for Brown’s
alleged breach of contract before May 13, 2018, is time-barred.”111 The court held a
two-day trial on the remaining claims and counterclaims, which concluded on June
1, 2023.112 The parties completed post-trial briefing and argument on October 27,
2023.
II. LEGAL ANALYSIS
Brown claims that Court Square breached the LLC Agreements by withholding
carried interest owed to him.113 Court Square had paid Brown approximately $4.2
million in carried interest since his June 2016 departure from the company.114 After
the letter campaign, however, Court Square withheld $4,134 due to Brown from Fund
II115 and $4,879,192 due to Brown from Fund III.116 Brown seeks payment of the
roughly $4.9 million in withheld amounts, along with damages in the amount of
109 Dkt. 21.
110 Brown v. Court Square Cap. Mgmt., L.P., 2022 WL 841138, at *6 (Del. Ch. Mar.
22, 2022) [hereinafter “Dismissal Decision”]. 111 Id. at *4.
112 Dkt. 156.
113 Am. PTO ¶ 2.
114 Id. ¶ 48.
115 Id. ¶ 50.
116 Id. ¶ 51.
17 capital gains plus pre-judgment interest.117 Brown further seeks an order requiring
Court Square to reinstate his interest in the Funds and resume payments owed to
him going forward.118 Defendants counterclaim that Brown breached the Non-
Compete Provisions and Confidentiality Provisions of the LLC Agreements. In
Defendants’ view, these breaches justifying their failure to pay the withheld amounts,
entitle them to cease payments going forward, and further entitle them to claw-back
payments of carried interest already paid.119
A party seeking to enforce a contract must prove each element of its breach of
contract claim by a preponderance of the evidence.120 “Under Delaware law, the
elements of a breach of contract claim are: 1) a contractual obligation; 2) a breach of
that obligation by the defendant; and 3) a resulting damage to the plaintiffs.”121
Here, however, Defendants admit they ceased payments otherwise due to
Brown under the LLC Agreements, and that the breaches identified in the
117 Id. ¶ 64.
118 Id.
119 Id. ¶¶ 3, 65.
120 Dermatology Assocs. of San Antonio v. Oliver St. Dermatology Mgmt. LLC, 2020
WL 4581674, at *19 n.214 (Del. Ch. Aug. 10, 2020); Braga Invs. & Advisory, LLC v. Yenni Income Opportunities Fund I, L.P., 2020 WL 3042236, at *8 (Del. Ch. June 8, 2020); Simon-Mills II, LLC v. Kan Am USA XVI Ltd. P’ship, 2017 WL 1191061, at *36 (Del. Ch. Mar. 30, 2017); Zimmerman v. Crothall, 62 A.3d 676, 691 (Del. Ch. 2013); 23 Williston on Contracts § 63:14 (4th ed. May 2023 update). 121WaveDivision Hldgs., LLC v. Millennium Digit. Media Sys., L.L.C., 2010 WL 3706624, at *13 (Del. Ch. Sept. 17, 2010) (citing H–M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 140 (Del.Ch.2003)).
18 counterclaims are the sole basis to withheld payments. Unless Defendants can prove
their counterclaims, therefore, Brown prevails.
Defendants bear the burden of proving each element of the counterclaims by a
preponderance of the evidence.122 “Proof by a preponderance of the evidence means
proof that something is more likely than not. It means that certain evidence, when
compared to the evidence opposed to it, has the more convincing force and makes you
believe that something is more likely true than not.”123
Under Delaware law, when interpreting a contract, “the role of a court is to
effectuate the parties’ intent.”124 The court “will give priority to the parties’
intentions as reflected in the four corners of the agreement, construing the agreement
as a whole and giving effect to all its provisions,”125 unless the contract is
ambiguous.126 The court must not read ambiguity into a contract where none
exists.127 “[A] contract is only ambiguous when the provisions in controversy are
122 See S’holder Rep. Servs. LLC v. Gilead Scis., Inc., 2017 WL 1015621, at *15 (Del.
Ch. Mar. 15, 2017) (“To succeed at trial, Plaintiffs, as well as Counterclaim-Plaintiffs, have the burden of proving each element . . . of each of their causes of action against each Defendant or Counterclaim-Defendant, as the case may be, by a preponderance of the evidence.” (internal quotation marks and citation omitted)). 123 Agilent Techs., Inc v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18, 2010)
(quoting Del. Exp. Shuttle, Inc. v. Older, 2002 WL 31458243, at *17 (Del. Ch. Oct. 23, 2002)). 124 Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006).
125 In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (quoting Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014)). 126 Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
127 O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 288 (Del. 2001) (“[C]reating an
ambiguity where none exists could, in effect, create a new contract with rights,
19 reasonably or fairly susceptible to different interpretations or may have two or more
different meanings.”128 “[A]mbiguity does not exist where the court can determine
the meaning of a contract ‘without any other guide than a knowledge of the simple
facts on which, from the nature of language in general, its meaning depends.’” 129 If
ambiguity exists, then the court “may consider extrinsic evidence to resolve the
ambiguity.”130
Defendants’ counterclaims raise two issues, addressed in turn below: First, did
Brown’s conduct in connection with Zodiac or Hayward violate the Non-Compete
Provisions?131 Second, did Brown’s conduct in connection with the HUMs violate the
Confidentiality Provisions?132
A. Brown Did Not Breach The Non-Compete Provisions.
The Non-Compete Provisions are functionally identical except that the Fund
III LLC Agreement includes the phrase “actively considered” before “potential
investment” and the Fund III LLC Agreement makes four non-substantive and non-
liabilities and duties to which the parties had not assented.” (alteration in original) (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992)). 128 Id. (citing Rhone–Poulenc Basic Chems. Co., 616 A.2d at 1196).
129 Id. (quoting Rhone–Poulenc Basic Chems. Co., 616 A.2d at 1196).
130 Salamone, 106 A.3d at 374 (citation omitted).
131 Am. PTO ¶¶ 54, 55; Fund II LLC Agr. § 5.14(a); Fund III LLC Agr. § 5.14(a).
132 Am. PTO ¶ 56; Fund II LLC Agr. §§ 1.6, 5.14(c); Fund III LLC Agr. §§ 1.6, 5.14(c).
20 relevant alterations.133 Except for the “actively considered” language (bolded below)
and those minor alterations, both Non-Compete Provisions provide:
[D]uring the period such Member remains employed by the Company. . . and for a period of one year following such Member’s Termination Date, such Member shall not, directly or indirectly through any Person, acquire a direct or indirect interest in any partnership, firm, corporation, business organization, entity or other investment opportunity (each, an “Investment Opportunity”) that could reasonably be construed as being actively considered as a potential investment in a Portfolio Company and, with respect to the period after such Member becomes a Terminated Member, is set forth on the Deal Sheet that is provided to such Member as soon as practicable after such Member’s Termination Date; provided, that if the Deal Sheet is not provided to the Terminated Member within thirty (30) days of his Termination Date, no Investment Opportunity shall be construed as being actively considered as a potential investment in a Portfolio Company. Notwithstanding the foregoing, in no event shall this Section 5.14 be construed in of itself, as prohibiting a Member from (i) obtaining employment with, or investing in, a fund or any entity involved in similar activities as the Fund, or any such fund or entity investing in entities similar to the Fund so long as such Member otherwise complies with the provisions of this Section 5.14, (ii) making investments in (A) any Existing Fund or (B) any private equity fund, hedge fund or similar investment vehicle so long as such investment is passive and such Member does not have any management rights or investment decision-making authority with respect to such fund or investment vehicle, (iii) making investments in any Investment Opportunity that would otherwise not be prohibited by Section 6.11(a) of the Fund Partnership Agreement and any similar provision contained in the Governing Agreement of any other Person comprising the Fund, or (iv) in the case of William Comfort
133 Fund III LLC Agr. § 5.14(a). The court has found four additional differences between the two provisions, but none are relevant here. Accordingly, the court primarily cites to the Fund III LLC Agreement’s Section 5.14(a) but highlights the differences in the parentheticals for clarity.
21 and Thomas McWilliams, except as may be restricted by Section 6.11(a) of the Fund Partnership Agreement or any similar provisions in the Governing Agreement of any other Person comprising the Fund, engaging in any of the investment or business activities that he is permitted to engage in under Section 5.11. For the purposes of the previous sentence, a Member or Terminated Member shall be deemed to have acquired an indirect interest in an Investment Opportunity if such Member or Terminated Member receives any form of direct or indirect fee, payment or other compensation based on the rendering of investment advice to a third party regarding such Investment Opportunity.134
Simplified, the Non-Compete Provisions provide that Brown shall not
(i) “acquire an interest” in an (ii) “Investment Opportunity” within the one-year
period following his departure from Court Square. It does not categorically prohibit
Brown from working for a competitor. Nor does it prohibit Brown from advising a
competitor regarding an Investment Opportunity. Rather, the language narrowly
defines the prohibited conduct to acquiring an interest (directly or indirectly) in an
Investment Opportunity. This narrow definition is consistent with provisions of the
LLC Agreements that state that “in no event shall this Section 5.14(a) be construed
in of itself, as prohibiting a Member from . . . obtaining employment with, or investing
in, a fund or any entity involved in similar activities as” Court Square.135
Brown disputes that Zodiac and Hayward were Investment Opportunities for
Court Square under the LLC Agreements. And Brown’s arguments find strong
134 Id.
135 Fund II LLC Agr. § 5.14(a); Fund III LLC Agr. § 5.14(a) (same but referencing
Section 5.14 entirely, not just Section 5.14(a)).
22 support in the factual record, particularly under the “actively considered” language
of the Fund III LLC Agreement. But that dispute is secondary.
Even assuming that Zodiac and Hayward were Investment Opportunities,
Court Square’s claim still fails because Brown did not acquire an interest during the
prohibited period, directly or indirectly, in Zodiac or Hayward. Brown received a
single form of compensation during the one-year period—his salary and bonus from
MSD.136 Under his employment agreement, Brown would have been paid the same
regardless of the number of deals he worked on and regardless of whether they
included Zodiac or Hayward.137 For this reason, Brown did not engage in the
prohibited conduct—he did not “acquire an interest” in an Investment Opportunity.
Court Square does not dispute that Brown’s only interest in any potential
Investment Opportunity—Brown’s carried interest related to Hayward—occurred
after the prohibited period.138 Court Square argues, however, that Brown’s salary
and bonus from MSD constituted an acquired interest because Brown advised MSD
on Zodiac and Hayward.139 Court Square bases this strained interpretation of the
LLC Agreements on the contractual definition of “acquire,” which includes
“receiv[ing] any form of direct or indirect fee, payment or other compensation based
on the rendering of investment advice to a third party regarding such Investment
136 JX-78 at 1–5; Trial Tr. at 161:3–12, 296:2–8 (Brown).
137 Dkt. 176 (“Brown’s Am. Post-Trial Opening Br.”) at 21–22.
138 Am. PTO ¶ 38.
139 Court Square’s Post-Trial Opening Br. at 32.
23 Opportunity.”140 To Court Square, Brown’s salary was “based on” rendering
investment advice concerning the Investment Opportunities because he was hired “to
identify and pursue potential acquisitions” like Zodiac and Hayward.141
If Brown’s salary or bonus were tied to MSD’s successful investment in Zodiac
or Hayward, then Court Square’s argument might work. But Court Square did not
prove that Brown’s salary or bonus were tied to any Investment Opportunity.
Essentially, Court Square interprets the Non-Compete Provisions to preclude Brown
from working on any Investment Opportunity, regardless of whether he acquired an
interest in it. But that is not what the Non-Compete Provisions say. Had Court
Square desired to prohibit Brown from working on an Investment Opportunity, or
from working for a company that pursued an Investment Opportunity, it could have
crafted language tailored to prohibit that conduct. Instead, it narrowly defined the
prohibited conduct in terms of an acquired interest.
Moreover, the court’s job when confronted with contradictory contractual
interpretations is to “adopt the construction that is reasonable and that harmonizes
the affected contract provisions.”142 Court Square’s interpretation is discordant with
140Fund II LLC Agr. § 5.14(a) (emphasis added); Fund III LLC Agr. § 5.14(a) (emphasis added). 141 Dkt. 173 (“Court Square’s Post-Trial Reply Br.”) at 9.
142 Axis Reinsurance Co. v. HLTH Corp., 993 A.2d 1057, 1063 (Del. 2010) (“Here, the
controlling rule of construction is that where a contract provision lends itself to two interpretations, a court will not adopt the interpretation that leads to unreasonable results, but instead will adopt the construction that is reasonable and that harmonizes the affected contract provisions.” (citations omitted)); accord Samuel J. Heyman 1981 Continuing Tr. for Lazarus S. Heyman v. Ashland LLC, 284 A.3d 714,
24 other aspects of the LLC Agreements. Recall that the provisions did not prohibit
terminated members from working for a competitor.143 If salary was included in
“payment or other compensation” then former employees would be functionally
unable to work for competitors. That is because Brown’s Deal Sheet listed
approximately 400 companies. As Brown testified, even being prohibited from
rendering advice on 100 companies in his vertical would be “incredibly restrictive.”144
Being prohibited from rendering advice for approximately 400 companies spanning
all four verticals would certainly restrict him from working for a competitor.145
The parties spilled significant ink disputing the meaning of the Non-Compete
Provisions and describing parol evidence concerning those provisions,146 but the court
need not consider this evidence. The terms are unambiguous and the plain language
721 (Del. 2022) (“Courts should also assure that ‘all contract provisions [are] harmonized and given effect where possible.” (alteration in original) (quoting Martin Marietta Materials, Inc. v. Vulcan Materials Co., 68 A.3d 1208, 1225 (Del. 2012)); GMG Cap. Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012) (“In upholding the intentions of the parties, a court must construe the agreement as a whole, giving effect to all provisions therein.” (quoting E.I. du Pont de Nemours and Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985)). 143 Fund II LLC Agr. § 5.14(a) (providing “in no event shall this Section 5.14(a) be
construed in of itself, as prohibiting a Member from (1) obtaining employment with, or investing in, a fund or any entity involved in similar activities as” Court Square); Fund III LLC Agr. § 5.14(a) (same but referencing Section 5.14 entirely, not just Section 5.14(a)). 144 Trial Tr. at 179:2–16 (Brown).
145 Id.
146 See, e.g., Brown’s Am. Post-Trial Opening Br. at 33–36; Court Square’s Post-Trial
Opening Br. at 38–40.
25 drives the analysis.147 Accordingly, the court finds that Brown’s salary and bonus are
not included in the definition of acquired interest as set forth in Non-Compete
Provisions. Brown, therefore, did not breach the Non-Compete Provisions.
B. Brown Did Not Breach The Confidentiality Provisions.
The facts germane to Court Square’s claim that Brown breached the
Confidentiality Provisions are not in dispute: Brown asked Bertrand to share an old
HUM to use for formatting.148 In response, Bertrand sent seven HUMs that Brown
had co-authored for companies no longer on the market or that Court Square was no
147 Based on a footnote in the Dismissal Decision, Court Square went so far as to
argue that the court already resolved all of the interpretive disputes in Court Square’s favor, but that is not true. Court Square points to the court’s Dismissal Decision and argues that the court’s statement—“I have studied the parties respective briefing on these issues and find the defendants’ arguments compelling”—constitutes an affirmative finding that cannot be disturbed under the law of the case doctrine. Court Square’s Post-Trial Opening Br. at 34–35. In the Dismissal Decision, the court found “[a]t the pleading stage,” because the “Deal Sheet specifically identified Hayward as a prohibited potential investment[]” that “Hayward could reasonably be construed as a potential investment under the governing agreements.” Dismissal Decision, at *4 n.32. “The law of the case ‘is established when a specific legal principle is applied to an issue presented by facts which remain constant throughout the subsequent course of the same litigation.’” Washington v. Del. Transit Corp., 226 A.3d 202, 212 (Del. 2020) (quoting Kenton v. Kenton, 571 A.2d 778, 784 (Del. 1990)). “It is a ‘self-imposed restriction that prohibits courts from revisiting issues previously decided, with the intent to promote efficiency, finality, stability and respect for the judicial system.’” Id. (quoting State v. Wright, 131 A.3d 310, 321 (Del. 2016)). “The doctrine ‘presumes a hearing on the merits and only applies to issues the court actually decided.’” Id. (quoting Wright, 131 A.3d at 321). The deferential standard applied at the pleadings stage has no impact on the court’s post-trial factual findings, and thus Court Square’s invocation of the law of the case doctrine here is inapplicable. To the extent Court Square argues the Dismissal Decision found compensation included not just finder’s fees, but also salary, that is simply absent from the Dismissal Decision. 148 Trial Tr. at 94:14–95:22 (Bertrand).
26 longer considering.149 Brown forwarded them to an MSD analyst’s work email, giving
no “thought about the fact that he sent them from his Gmail account.”150
Both the Confidentiality Provisions provide, as relevant here:
Each Member and Terminated Member acknowledges and agrees that all Confidential Information is the property of the Company and/or other Covered Persons. Unless the Board otherwise provides its prior written consent, each Member and Terminated Member shall not, and shall not permit such Person’s affiliates to, directly or indirectly use, rely on, disclose, divulge, furnish or make accessible to anyone any Confidential Information.151
“Confidential Information” is defined in both LLC Agreements as:
(i) all information, materials or data relating to the Company, the Fund, the Management Company, any Portfolio Company, any of their respective Affiliates and/or any other Person to which any of such Persons has provided management, financial, advisory and/or consulting services (collectively, the ‘Covered Persons’) that are not generally known to or available for use by the public (including information or materials relating to products or services, pricing structures, accounting and business methods, financial data (including any historical performance data and investment track records), inventions, devices, new developments, methods and processes, prospective investments, customers, clients and investors, customer, client or investor lists, copyrightable works and all technology, trade secrets and other proprietary information) and (ii) any other information, materials or data that any Covered Person is required by law or agreement to keep confidential.152
149 See JX-106; supra n.82.
150 Trial Tr. at 295:15–20 (Brown).
151 Fund II LLC Agr. § 5.14(c); Fund III LLC Agr. § 5.14(c).
152 Fund II LLC Agr. § 1.6; Fund III LLC Agr. § 1.6.
27 Court Square advances many arguments for why Brown’s conduct in
connection with the HUMs breach of the Confidentiality Provisions, but its strongest
argument relies on the language in the Confidentiality Provisions prohibiting Brown
from making accessible information “that [is] not generally known to or available for
use by the public.”153
To be clear, Court Square does not dispute Brown’s contention that his sole
purpose in seeking and forwarding these documents was to create a formatting
template. Court Square does not claim that the formatting of the documents was
confidential. And Court Square does not contend that Brown used the information
in the HUMs for competitive purposes.
Rather, Court Square argues that the HUMs contained confidential
information not generally known to or available for use by the public and that Brown
breached the Confidentiality Provisions by requesting and receiving the HUMs.154
Court Square argues the HUMs contained two types of confidential information:
third-party information drawn from confidential information memoranda (“CIMs”)
received pursuant to NDAs; and Court Square’s analyses and conclusions regarding
investment opportunities.155
Court Square’s arguments are of dubious merit for many reasons. For starters,
Court Square bears the burden of demonstrating that the information in the HUMs
153 Fund II LLC Agr. § 1.6; Fund III LLC Agr. § 1.6.
154 Court Square’s Post-Trial Opening Br. at 57–63.
155 Id.
28 was not generally known to or available for use by the public. But the financial
information in the HUMs was widely circulated among private-equity firms and
would have been easily accessible to anyone in Brown’s position.156 Brown developed
the strategies and angles reflected in the HUMs, raising questions as to whether that
information was confidential as to Brown.157 And Court Square did not comb through
each of the HUMs to identify the confidential valuation, angles, and strategy
purportedly contained therein.
The court does not need to reach the merits of the confidentiality breach claim,
however, because Court Square does not argue Brown’s breach of the Confidentiality
Provisions was material or resulted in any harm to Court Square. Again, Brown used
these memos, which he co-authored, containing stale information for companies that
were no longer on the market, as templates. Neither MSD nor Brown ever considered
investing in the seven HUM companies, and MSD does not retain the HUMs on its
servers.158 If Brown’s actions constituted breach, then it was exceptionally minor and
did not permit Court Square to abandon performance.159
156 See Trial Tr. at 429:13–430:15 (Silvestri).
157 See Moore Dep. Tr. at 277:15–279:21.
158 JX-443, Responses to Questions 2, 3, 6; Trial Tr. 194:16–197:22 (Brown).
159 See AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929,
*101 (Del. Ch. Nov. 30, 2020) (quoting 23 Williston on Contracts § 63:3 (4th ed. 2003) (defining partial breach)), aff’d, 268 A.3d 198 (Del. 2021).
29 III. CONCLUSION
Judgment is entered in favor of Brown. Counsel shall submit a form of order
implementing this decision within ten business days.