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The page presents more information regarding the use of the Teleconference.

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Nate
Today 11:50 AM
Yesterday
I'm sorry I'm so behind on
everything, just been pretty
overwhelmed.

I just finished our Q1
board
meeting, and on my flight
home now.

[Redacted]

I can carve out some time
tomorrow to catch up

[Redacted]

Jared Isaacman
Today 7:56 AM
Good. All this advertising spend
and the resulting 33% attrition
better have a good ROI story
associated with it or we have real
problems
Aguiar

[Redacted]
Yesterday 12:14 PM

Yesterday 12:15 PM
Perfect

Understood

Today 9:31 AM
[Redacted]

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Daniel Aguiar
Yesterday 1:07 PM
[Redacted]

Jared Isaacman
Today 7:58 AM
So again, the 33% attrition
is going to become a real
problem real fast.

Daniel Aguiar

Today 9:45 AM
We will have that for you here shortly
[Redacted]

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Taylor Green

Today 9:52 AM
[Redacted]

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Kyle Webster
Yesterday 11:05 AM
I am going to be tied up for
the next few hrs in a new hire
onboarding. I'll keep phone
on vibrate in case you need
me.

Jared Isaacman
Today 8:15 AM
Well it sounds like
[Redacted]
we all better get on the same
page with attrition - and
especially one another
before
external calls

Nate Adams
Today 10:14 AM

[Redacted]

[Image of Text Message Chain 2-2]

Kyle Webster
Today 10:16 AM

[Redacted]
I will follow up internally and schedule a number of touchpoints to get us aligned

[Image of Text Message Chain 2-3]

Jared Isaacman
Today 10:31 AM

[Redacted]

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
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CARD CONNECT, LLC,
Plaintiff,
-against-
SHIFT4 PAYMENTS, LLC, and
SHIFT4 CORPORATION,
Defendants.
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C.A. No. 1:19-cv-01226-SB
VIDEO TELECONFERENCE (VTC)
SECURE
BEFORE: Hon. Stephanos Bibas
U.S. Circuit Judge, Sitting by
Designation
Wilmington, Delaware
Thursday, January 26, 2023
1:30 p.m.
APPEARANCES:
For Plaintiff: KELLY FARNAN, LLP
Brian E. Farnan, Esquire
Michael J. Farnan, Esquire
(APPEARANCES CONTINUED)

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1 APPEARANCES (Cont'd):
2 For Plaintiff: MORRIS, NICHOLS, ARSHT & TUNNELL
(Continued) Jack B. Blumenfeld, Esquire
3 Jeremy A. Tigan, Esquire
Anthony D. Raucci, Esquire
4
MAYER BROWN LLP
5 Andrew. J. Pincus, Esquire
6
For Defendant: YOUNG CONAWAY STARGATT & TAYLOR, LLP
7 Josy W, Ingersoll, Esquire
8
RICHARDS, LAYTON & FINGER, P.A.
9 Kelly E. Farnan, Esquire (B891)
10
REED SMITH LLP
11 Jennifer L. Reddien, Esquire
12
WILSON SONSINI GOODRICH & ROSATI
13 Stefani Smith, Esquire
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UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 Wilmington, Delaware
2 Thursday, January 26, 2023
3 1:30 p.m.
4 THE COURT: Good afternoon, everyone. You may be
5 seated.
6 This is Judge Stephanos Bibas, and I am here today to
7 handle some objections to the magistrate judge's report and
8 recommendation in the Card Connect versus Shift4 Payments matter.
9 The case number is 1:19-cv-1226.
10 I will hear argument today from Mr. Pincus on behalf of
11 Card Connect and from Ms. Reddien on behalf of Shift4.
12 The magistrate judge recommended that I grant Shift4's
13 motion for judgment on the pleadings seeking to dismiss Card
14 Connect's claim that Shift4 breached the parties' implied covenant
15 of good faith and fair dealing. In other words, the recommendation
16 was to grant Shift4's motion that there was no claim for breach of
17 the implied covenant.
18 As always, I read the briefing. I had questions. I thank
19 you for your supplemental briefing. I've reviewed the authority
20 cited by everybody, and I will give each side up to 25 minutes to
21 argue. I will ask you questions as I have them.
22 Mr. Pincus, would you like to begin?
23 MR. PINCUS: Yes. Thank you, Your Honor.
24 May it please the Court, Andy Pincus from Mayer Brown for
25 Card Connect, along with Jack Blumenfeld and Jeremy Tigan of
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 Morris, Nichols, Arsht & Tunnell, and Brian Farnan of Kelly &
2 Farnan.
3 THE COURT: Let me ask you a general question at the
4 outset, which is there are two kinds of implied covenant claims.
5 One is to kind of fill gaps, and the other one is where you've
6 identified a particular contractual provision but say that the
7 other side is using it in an opportunistic way that wasn't intended
8 by the contract, and there are, in the Delaware, the Chancery
9 cases, authority for both.
10 Do we think this is the sort of case that might fall into
11 one, or the other, or both of those categories?
12 MR. PINCUS: Well, I think it clearly in our view falls in
13 the first category, and I think it's less necessary to reach the
14 second because, as we explain in the supplemental, our opening
15 brief, we identified in answering the question, Your Honor, asked
16 us to answer, which is, what is the reasonable expectation of the
17 parties here.
18 And there are two parts to this agreement. One is the
19 relationship between First Data and Card Connect. And there the gap
20 is that First Data, because First Data had all of the discretion,
21 right? They had all the power.
22 The only two obligations were don't terminate this
23 agreement, and we're going to route you everything that we identify
24 as falling within its scope, all of those transactions. Card
25 Connect had no way to know if First Data was playing by those rules
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 or not. And at the pleading stage, we alleged in our complaint
2 that First Data had not played by those rules.
3 So there's certainly nothing in the agreement that would
4 allow them -- you know, nothing that would suggest that the
5 parties' reasonable expectation was that First Data could do that,
6 could engage in the conduct that we alleged violated the implied
7 covenant.
8 Here the fundamental point is, because we've added that the
9 Shift4 agreement is part of the conduct that we allege, that the
10 reasonable expectations were that there was not anything in the
11 agreement that would allow First Data to not provide these
12 transactions to Card Connect, Shift4's reasonable expectations have
13 a very similar basis.
14 The provision that the magistrate judge said authorized
15 termination of certain merchants, we can talk about that, but that
16 came subject to very specific criteria, and our allegations in the
17 complaint --
18 THE COURT: Let me pause you there and ask about, because
19 one of the things she says it there's a detailed agreement. It's
20 negotiated for arms' length by parties. It's not a situation where
21 there's a form agreement; there's information asymmetry.
22 And so she says that there's a lot of detail in this
23 agreement; there's some detail in that particular provision.
24 Therefore, she says, and this is my part of this, is
25 Delaware law doesn't use unconscionability. It uses a much narrower
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 implied covenant to fill in gaps and the parties didn't kind of
2 provide for something, but this does seem to have been a heavily
3 negotiated agreement.
4 MR. PINCUS: Well, two things about that, Your Honor.
5 First, Delaware law has always said that there are categories
6 of cases where there are gaps, and the ones that it identifies --
7 one is there are -- the party has all the discretion, which is here
8 with respect to termination and routing, right?
9 And, second, there are places where a party would have --
10 well, third, a category that we argued here is that there's a
11 circumstance that develops that the party didn't anticipate,
12 right? And that certainly is the case here.
13 But most relevant here, nobody alleges that, with respect
14 to the routing of the transactions, which is, the allegation of the
15 fundamental breach of the implied covenant is that First Data and
16 Shift4 cooked up a deal in violation of their agreement to say,
17 well, we're going to terminate some of these merchants, or whatever
18 they did, to keep Shift4 from getting the business that it was
19 entitled to get.
20 With respect to that, it's really no different than any
21 other case in which there has been a contract for a significant
22 period of time, and over time circumstances develop that suggest,
23 hey, maybe we can do something to try to avoid our obligations.
24 That's what all of these cases involve, and they're
25 consistent -- the cases we cite are consistent with that.
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 THE COURT: So let me ask you, do you think it's fair to
2 read our court of chancery cases as saying there's sort of a
3 sliding scale? So the more the sophistication and detail and
4 arms'-length negotiation, the narrower the implied covenant because
5 less gap filling we need to do, but the more that it's a form
6 contract or it's something where somebody is at a disadvantage or
7 it's brief, the more likely?
8 Do you think that's a fair way of thinking about those
9 cases, or do you think, no, there's a separate pigeon hole for,
10 like, we didn't anticipate this particular situation?
11 MR. PINCUS: No, no, I think --
12 THE COURT: It doesn,t depend on how much effort they put
13 into the contract.
14 MR. PINCUS: I don't think it's a sliding scale, Your
15 Honor. I think it's, you know, sort of have to look at each case
16 and see what category it fits in.
17 So the two points on the cases. One is, I think, Nemec,
18 the case that we're arguing about here, is really dispositive
19 because that's the case where there was arms'-length negotiation,
20 there was a lot of specificity; and, yet, the court said there's
21 still a claim for breach of the implied covenant.
22 The second is the cases that the other side cites in which
23 sophisticated parties and detailed agreements got thrown out, those
24 are all cases in which the party claiming a breach was saying as
25 part of the agreement you gave me a commitment, an explicit
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 commitment; you guaranteed this, right?
2 And those cases stand for the proposition that when a party
3 has bargained to get an express guarantee, it can't say, well,
4 there's a breach of the implied covenant because you didn't
5 maximize that, you know, to the extent that was not bargained for.
6 THE COURT: So in other words, if there's negotiation
7 over, you know, we will use best efforts or reasonable efforts,
8 you've negotiated what efforts, you can't say, well, I know it's
9 just best or reasonable, but impliedly you, like, really had to
10 bust down the door and knock yourselves out and do the best
11 conceivable effort.
12 MR. PINCUS: Right. That's not us. That's not this
13 case. And here the -- our claim is --
14 THE COURT: I understand. That's different.
15 MR. PINCUS: Okay. And it's that the -- that First Data
16 didn't play by the rules it committed to play by, which is, you
17 know, they didn't give Card Connect the transactions they were
18 required to give, and that's the breach.
19 And, fundamentally, if you go back to the purpose of the
20 implied covenant, the case law says it's supposed to protect the
21 spirit of the agreement, right? Well, there's nothing in the notion
22 -- if First Data decides, well, we're going to figure out a way to
23 do it, or we're going to get somebody else to help us figure it out
24 because, you know, they're not paying us enough, right, they're --
25 you know, they're paying us a fixed fee, and they're making a lot of
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 money.
2 They can't do that. That's the breach, and that has
3 nothing to do with it being a long or a short agreement.
4 THE COURT: What do you do with the magistrate judge's
5 point that the defendants here didn't promise not to compete with
6 the plaintiff?
7 MR. PINCUS: Well, they didn't, but it's the way they
8 competed. I mean, it's that they competed in a way that violated
9 the provisions of the agreement, which is not to -- you know, they
10 said, we are going to route these transactions to you, right?
11 And so it's not that they can't compete. They can't
12 compete in a way that violates the agreement.
13 THE COURT: I guess I'm a little puzzled. If I follow
14 you, a lot of contracts would have implied covenants. I mean, I
15 assume Card Connect continues even today to try to take customers
16 away from Shift4, and Card Connect has got the freedom to compete
17 with Shift4, and Shift4 has the freedom to compete with Card
18 Connect.
19 I guess why isn't this inconsistent -- I mean, I take it
20 Card Connect has been trying to compete with Shift4 over these
21 customers and others over the years.
22 MR. PINCUS: Well, it's not any customer.
23 THE COURT: Right.
24 MR. PINCUS: It's just --
25 THE COURT: It's just that they don't --
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 MR. PINCUS: Right. That's right. That's the difference.
2 We're not saying -- and that was very specific. And the reason why
3 that particular group of customers, which is defined in very
4 detailed, you know, two provisions of the agreement, Schedule 5.4
5 and 5.5, they came about because those are the customers that
6 Shift4 -- that Card Connect brought to First Data, right?
7 And it said when Card Connect brought them to First Data,
8 these are our -- you know, basically a non-compete with respect to
9 this group of customers; and, you know, maybe it's better phrased as
10 "non-solicitation" --
11 THE COURT: Right.
12 MR. PINCUS: -- but it's not that they --
13 THE COURT: I mean, those get litigated not infrequently.
14 MR. PINCUS: That's right.
15 THE COURT: They're supposed to be non-solicits; maybe
16 they're too close to the line; maybe they weren't.
17 I take it your argument is, that's not an implied
18 covenant, that's written into the agreement --
19 MR. PINCUS: Exactly.
20 THE COURT: -- so there might be a breach.
21 MR. PINCUS: Yes.
22 THE COURT: But even if they hadn't expressly had that
23 covenant, there would be an implied one because they're not allowed
24 to compete.
25 MR. PINCUS: No, no, that's not -- that would not be true
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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1 because, a, if it was a group of customers that hadn't been brought
2 in by Card Connect, the whole structure of this agreement wouldn't
3 exist, right?
4 THE COURT: Okay.
5 MR. PINCUS: So it wouldn't be as a gap.
6 THE COURT: Okay. So here it's a gap, and I should read
7 that in because of the structure of this and they didn't want to
8 give you an express right for some reason?
9 MR. PINCUS: Well, they gave us an express right with
10 respect to a commitment that we're going to give you all these
11 transactions. That was the express right.
12 THE COURT: And the gap is that you got that.
13 MR. PINCUS: And the gap is -- the gap is that they
14 didn't.
15 THE COURT: -- by the way, we're going to try not to is
16 the term you wouldn't accept, or by the [sic] way, we promise not to
17 actively try to subvert it by scheming with a third party is the
18 term.
19 MR. PINCUS: No. Because they could have, without
20 subverting it -- if there hadn't been a third party, what the
21 contract says is they can terminate for specific reasons, right, a
22 bunch of specific reasons.
23 What they can't do is terminate with the help of a third
24 party in a way that deprives Connect -- Card Connect of its rights;
25 and, fundamentally, the right -- the expectation was that we
UB: 23-01-26 BNC/Card Connect, LLC 1:19-cv-01226-SB

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12

1      brought in these customers.  These are our customers, as it

2      were, right?

3                THE COURT: Right.  I mean, it's a kind of -- there's

4      a kind of finder's fee model to this.

5                MR, PINCUS: Yeah.

6               THE COURT: You brought in the business.

7                MR. PINCUS: That's right.

8                THE COURT: And you can't --

9                MR. PINCUS: So when we look at this agreement from

10     the point of view of what were the reasonable expectations of

11      the parties, the reasonable expectation of First Data in terms

12      of what it could take away from Card Connect, it was not

13      anything that it could take away, right?

14                THE COURT: But it could take away as expressly

15      provided in the contract.

16                MR. PINCUS: Exactly.  Expressly provided.  And the

17      magistrate judge focused on that and said that's an issue of

18     fact, whether or not the -- it was, And our point is that that

19      isn't an issue of fact because that's -- we alleged in our

20      complaint very clearly that they didn't -- that that's the

21     criteria weren't met.  So that's not a fact.

22                THE COURT: All right.  Let me hear from your opponent

23     then.

24                MR. PINCUS: Okay,

25                MS, REDDIEN: Good afternoon, Your Honor. Jennifer

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1       Reddien from Reed Smith on behalf of Shift4.

2                So, Your Honor, I want to start where Mr. Pincus just

3       ended in terms of these are our customers, They weren't the

4       customers of Card Connect.  They never were.  They were always

5       customers of First Data,  And Card Connect never had any direct

6       relationship with any of these customers and never had -- even

7       under the operating agreement, it never had any rights to

8      solicit any of these customers,

9                THE COURT: But, I mean, there is this weird structure

10      whereby Card Connect brought a bunch of customers in and said

11      these are ones we're getting a piece of, so there,s some kind of

12      understanding that they would continue to get a piece of unless

13      there was an express reason not to in the contract,

14                MS, REDDIEN: Well, what the contract says is that,

15      for this population of existing Card Connect merchants --

16      Card Connect would continue to receive a certain revenue stream

17      from those merchants, in essence, as a finder's fee, as Your

18      Honor characterized it.

19               But what it never did, the parties did not negotiate any

20       protection for Card Connect in the event those merchants went

21      away,

22                THE COURT: So what do you make of the Delaware case

23      law about implicit in some of these contracts where a lot rides

24      on whether an implied term is that you try not to undercut the

25      economics of what you've structured for somebody else! And so

UB:   23-01-26  BNC/Card Connect, LLC  1:19-cv-01226-SB

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1      there is -- you know, it's not quite unjust enrichment, but, you

2      know, it's you can't do an end-around the contract.

3                MS, REDDIEN: Your Honor, the Delaware case law on that

4      is very clear, The implied covenant is rare.  It's only used in

5      rare cases where there is actually a gap in the contract, and it

6      only applies when the conduct at issue is not authorized by the

7     plain terms of the agreement.  So, for example, His Honor

8     referenced the Nemec case --

9                THE COURT: Right.

10               MS. REDDIEN:  -- that case involved a claim that
11      defendants had misrepresented the value of a company to avoid

12      milestone payments. The agreement had a very express provision

13      that the defendants could not deliberately misrepresent the net

14      worth of that company and that they had to accurately calculate

15      the milestone payments.

16               There's no similar term in this agreement.  There,s none.

17     There,s --

18               THE COURT: Are you saying it's an express term?

19               MS, REDDIEN; Yes.

20               THE COURT: I got it.  But you,re saying even if implied

21       terms in theory could apply, they don't here because here it's not

22      misrepresentation; it's actual competition.

23               MS. REDDIEN: Your Honor, it's not even that.  It's not

24      even about competing with Card Connect.

25               THE COURT: So, you know, the implied covenant doesn't

UB:  23-01-26  BNC/Card Connect, LLC   1:19-cv-01226-SB

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1       extend to competition for these.
2                MS. REDDIEN: It does not extend to competing. Correct
3                THE COURT: It's about taking actions that are going to
4   deprive them.
5                MS, REDDIEN: So, no, Your Honor, so that,s precisely our
6   point-
7                THE COURT: You,re taking a much narrower view of it.
8   MS.REDDIEN: Well, no. Your Honor, the Delaware
9    Supreme court have made Clear that there is very narrow View
10    the implied covenat. it must be neccessary to imply a term in
11  order to effectuate the intent of the parties what the contract
12   as written does not allow
13              THE COURT: All right.
14               MS. REDDIEN: And the contract here doesn't require
15    that. The parties -- this contact --
16                 THE COURT: It doesn't require it because the implied
17    covenants cases require things like deception and
18    misrepresentation, not simply structuring another deal so that
19    the economics end up the same as if you have terminated that
20   deal by transferring it.
21                MS. REDDIEN: Well, the contract defines this