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

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

FRIENDFINDER NETWORKS INC. )
AND VARIOUS, INC., )
)
Plaintiffs, )
)
v. ) C.A. No. 12436-VCMR
)
PENTHOUSE GLOBAL MEDIA, )
INC., )
)
Defendant. )

MEMORANDUM OPINION
Date Submitted: February 14, 2017
Date Decided: May 26, 2017

Robert W. Whetzel, Steven J. Fineman, Jason J. Rawnsley, and Selena E.
Molina, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware;
Attorneys for Plaintiffs.

Stephen B. Brauerman and Sara E. Bussiere, BAYARD, PA, Wilmington,
Delaware; Attorneys for Defendant.

MONTGOMERY-REEVES, Vice Chancellor.
 This dispute results from a transaction between two companies in the adult

entertainment and dating industry. As part of the transaction, various adult website

domain names transferred ownership. The transaction’s governing stock purchase

agreement did not list which domain names were to be transferred at closing. Rather,

the parties, through various negotiations before the transaction, agreed to identify

and transfer the relevant domains after closing. After the closing, the parties

exchanged lists of domain names, and ultimately, the seller transferred and the buyer

accepted over 1000 domain names.

The seller now sues, claiming nine of those domains still belong to seller and

were wrongfully transferred as part of the transaction. The seller argues that the

contract delineated only the intellectual property that was associated with, used in,

or material to the business of the buyer at the time of closing, and the nine domains

are not included in that category. The buyer, on the other hand, argues that the

parties entered into two separate contracts regarding the domains, and the nine

domains were appropriately transferred under those agreements. As discussed

below, I find that the stock purchase agreement provides an unambiguous standard

for the identification of the domain names, and the parties operated under this

agreement. The buyer is entitled to domain names associated with, used in, or

material to its business at the time of closing, and the buyer has not presented

evidence to show that the disputed domains fall under this category.

2
I. BACKGROUND
These are my findings of fact based on the parties’ stipulations, over 300

exhibits, and the testimony of nine witnesses during a three-day trial. I accord the

evidence the weight and credibility I find it deserves.1

A. Parties and Relevant Non-Parties
Plaintiff FriendFinder Networks Inc. (“FriendFinder”) is a social networking,

online dating, and video-sharing services company that provides video chat,

recorded video, online chat rooms, webcams, instant messaging, photo and video

sharing, and premium content.2 FriendFinder has over 700 million members around

the world.3 Plaintiff Various, Inc. (“Various”) is a wholly-owned subsidiary that

operates the dating and video-sharing businesses of FriendFinder.4

Jon Buckheit has been FriendFinder’s Chief Executive Officer since August

2015 and a member of its board since early 2015.5 Ezra Shashoua joined Penthouse

1
Citations to testimony presented at trial are in the form “Tr. # (X)” with “X”
representing the surname of the speaker, if not clear from the text. Exhibits are cited
as “JTX #,” and facts drawn from the parties’ Joint Pre-Trial Stipulation and Order
are cited as “PTO ¶ #.” Unless otherwise indicated, citations to the parties’ briefs
are to post-trial briefs.
2
FriendFinder Networks, Who We Are, http://www.ffn.com/#about (last visited
January 25, 2017).
3
Id.; Tr. 9-10 (Buckheit).
4
JTX 339; Tr. 17 (Buckheit).
5
Tr. 5, 56-57 (Buckheit).

3
Media Group, Inc. (“PMGI”) in 2007 before its initial merger with Various later that

year; Shashoua became the Chief Financial Officer of FriendFinder on January 1,

2008.6 Shashoua left FriendFinder in July 2014, returned in September 2015, and

represented FriendFinder in the negotiations at issue here.7 Shashoua is also a

member of FriendFinder’s board. Diana Ballou is Vice President and Senior

Counsel at FriendFinder and is the in-house attorney “principally responsible” for

the transaction.8

Defendant Penthouse Global Media Group, Inc. (“Penthouse”) is an adult

“entertainment and media firm” with four business units—publishing, broadcast,

digital media, and licensing.9 Kelly Holland is the owner and Chief Executive

Officer of Penthouse.10 Donald Slaughter is the Chief Operating Officer of

Penthouse and oversaw its performance under various agreements with

FriendFinder.11 Tom Fox is the Chief Technology Officer of Penthouse and served

as Vice President of information technology at FriendFinder prior to the

6
Id. at 118-19 (Shashoua), 476-77 (Holland); PTO ¶¶ 6-8.
7
Id. at 119-20 (Shashoua), 25 (Buckheit).
8
Id. at 241 (Ballou), 25 (Buckheit).
9
JTX 143; JTX 186; Tr. 461 (Holland).
10
Tr. at 464-67 (Holland).
11
Id. at 790-91 (Slaughter).

4
transaction.12 Relani Belous is Penthouse’s General Counsel and served as Senior

Counsel and Vice President of FriendFinder prior to the transaction.13

B. Facts

1. The businesses prior to the transaction
Penthouse magazine was founded in 1965 by Bob Guccione and grew into a

well-known brand worldwide. In 2007, PMGI acquired Various, and afterwards the

entire business was held by the newly created entity, FriendFinder.14 Prior to the

transaction at issue, FriendFinder consisted of three business units: dating, cams, and

entertainment.15 The dating business was located in Silicon Valley, California and

comprised a “series of dating websites for various proclivities of individuals.”16 This

included the dating website FriendFinder.com, which catered to the mainstream

population and offered online communities for various cultures, religions, and

interest groups.17

12
Id. at 706 (Fox).
13
Id. at 634, 660 (Belous).
14
Id. at 476-77 (Holland); PTO ¶¶ 6-8.
15
Tr. 10, 61 (Buckheit).
16
Id. at 10 (Buckheit).
17
Id. at 10-11 (Buckheit); JTX 116.

5
 As part of its dating business, FriendFinder also ran AdultFriendFinder, a

member-based adult dating and social networking platform on which a user may

view another’s profile for free but must pay to communicate with other users.18

FriendFinder also maintained “co-brands,” which are websites that contain different

“themes” targeted at particular interests. Although the theme for each co-brand

differed, each allowed users to view profiles throughout the AdultFriendFinder

database and the other co-brands.19 As part of this design, the co-brands had

different pages one saw when he or she loaded the website prior to login (“Splash

Pages”), but the co-brands shared the same layout and structure after login.20

FriendFinder also engaged affiliates—websites that placed a link to one of the co-

brand websites on their page—to direct traffic to the AdultFriendFinder network

websites.21 In return, the affiliates received a portion of any subsequent subscription

fee.

The cams business, also located in Silicon Valley and operated by a subsidiary

called Streamray, Inc. (“Streamray”), offered live, pay-per-view broadcasts through

18
Tr. 123-24 (Shashoua).
19
Id. at 124-25 (Shashoua), 11-12 (Buckheit).
20
Id. at 397-99 (Palage); JTX 68; JTX 334 ¶¶ 62-66.
21
Tr. 12-13 (Buckheit), 126-27 (Shashoua).

6
which customers could interact with models on a video feed.22 Cams.com was the

main website for this business.23

The third business unit was the Penthouse entertainment business, which was

located in New York and Los Angeles.24 This business consisted of broadcasting,

publishing, licensing, and online paysites.25 It relied on professionally generated

content, rather than the user-generated content hosted by the dating and cams

businesses.26 The three business units shared operations, including executive

management and assets, and shared legal, accounting, and technology departments.27

The technology department used the same data center, network provider, and staff

for all three business units.28

2. The domains before the transaction

At trial, FriendFinder’s expert, Michael D. Palage, a domain name registration

consultant, testified as to how website and domain name ownership is monitored.

22
Id. at 13-15 (Buckheit).
23
Id. at 14-15 (Buckheit).
24
Id. at 14-15 (Buckheit).
25
Id. at 122 (Shashoua), 14-15 (Buckheit).
26
Id.
27
Id. at 178, 187, 193-94 (Shashoua).
28
Id. at 708 (Fox).

7
According to Palage, domain names are essentially short-hand, intuitive

identifiers—i.e. Facebook.com, Google.com—for a website’s IP address.29 Because

of domain names, users do not have to remember the complex, numerical IP

addresses of websites.30 Domain names are registered on “name servers,” which

essentially act as telephone directories for website domain names.31 Name servers

can be hosted by an individual or a third-party service.32 A registrar helps a person

or entity register a domain name.33 Well-known registrars include GoDaddy,

NetworkSolutions, and CSC.34 If the registrar finds that the domain name is

available, it will collect information on the owner, known as a registrant.35 The

registrar then stores the contact information of the registrant and makes certain

information publicly available.36 This data is available through the WhoIs service,

29
Id. at 380-83 (Palage).
30
Id. at 381 (Palage).
31
Id. at 382-83 (Palage).
32
Id. at 382 (Palage).
33
Id. at 385-87 (Palage).
34
Id. at 386 (Palage).
35
Id. at 387 (Palage).
36
Id. at 387-88 (Palage).

8
which contains a searchable database of registration information for domain

names.37

Palage testified that WhoIs information is not always accurate because of

illegal “cybersquatting” and registrants’ delay in updating their registration

information when it changes.38 Thus, Palage uses multiple “indicia” to subjectively

determine the ownership of a domain.39 This includes WhoIs current and historical

data, the current and historical use of the domain, financial data such as costs and

revenue associated with the domain, and any transactional records.40

There are nine website domains in dispute in this case: hornywife.com,

bookofsex.com, photobookofsex.com, photogalleryofsex.com, nakedwithfood.com,

nakedfemalebodybuilder.com, boobfarm.com, boob-squad.us, and missblizz.com

(collectively, the “Disputed Domains”).41 All of the Disputed Domains were

registered through GoDaddy, and eight of the nine domains were maintained in a

“penthouse2010” GoDaddy account prior to the transaction.42

37
Id. at 388-90 (Palage).
38
Id. at 391 (Palage).
39
Id. at 394-96 (Palage).
40
Id.
41
Compl. ¶ 1 n.1.
42
Tr. 413-14 (Palage), 716 (Fox).

9
 a. Hornywife
The earliest WhoIs record for hornywife is from 2001, and it shows the

registrant as GMCI Internet Operations, Inc. (“GMCI”), with a New York address.43

GMCI is a Penthouse-associated business. Using a Wayback Machine44 search,

Palage found that from 2005 to 2011, the hornywife website was automatically

redirected to penthouse.com.45 By November 2011, the registrant for the hornywife

domain changed to Various, with a California address, and the name servers were

switched from Penthouse servers to Various servers.46

Hornywife.com became an AdultFriendFinder co-brand on September 14,

2011.47 Hornywife’s Splash Page lists Various as the copyright owner.48 In

September 2011, Various’s accounting records reflected revenue from this domain

for the first time, and since then, Various paid affiliates, incurred advertising costs,

43
JTX 334 ¶ 71-73.
44
The Wayback Machine is a tool commonly used in the industry to establish the
existence of specific information available at a given website on a given date. JTX
334 ¶ 59.
45
JTX 334 ¶ 85.
46
Tr. 400-01 (Palage); JTX 334 ¶¶ 79-81.
47
Tr. 137-38 (Shashoua), 401-02 (Palage); JTX 62.
48
Tr. 137-38 (Shashoua), 401-02 (Palage); JTX 62.

10
promoted the website among affiliates, paid to purchase keywords for search engine

optimization, and recognized revenue from the domain.49

b. Bookofsex

In 2011, Facebook sued FriendFinder for using the domain

facebookofsex.com as a dating website.50 In response, FriendFinder purchased

bookofsex.com in April 2011 from worldwide media, inc., which had been listed as

the registrant since 2005.51 FriendFinder developed bookofsex.com to use as a co-

brand for AdultFriendFinder.52 In May 2011, the registrant changed to Matthew

Schmitt at GMCI, and the name servers changed to FriendFinder name servers.53 In

August 2011, the bookofsex registrant information changed from GMCI to

Various.54

Various has paid for affiliates, advertising, and search engine optimization for

bookofsex.com, and it has recognized revenue for the website since 2011.55 Prior to

49
JTX 6; Tr. 155, 161 (Shashoua), 398 (Palage).
50
Tr. 139 (Shashoua).
51
JTX 46; JTX 334 ¶ 93; Tr. 139, 142-44 (Shashoua).
52
JTX 46; JTX 334 ¶ 93; Tr. 139, 142-44 (Shashoua).
53
JTX 334 ¶ 95; Tr. 404 (Palage).
54
JTX 334 ¶ 98.
55
JTX 5; Tr. 125-26, 144, 162-63 (Shashoua), 404 (Palage).

11
June 2011, the domain was primarily used as a “link farm” for other domains

offering adult content.56 In June 2011, the website changed to contain the bookofsex

logo, and the copyright and terms of use have identified Various as the owner since

that time.57 In November of 2011, the website changed to the design that currently

is visible, and it was maintained as an AdultFriendFinder co-brand until the time of

the transaction at issue.58

c. The inactive websites
On May 3, 2011, after the Facebook litigation, the domains photobookofsex

and photogalleryofsex were created.59 They originally were registered to

FriendFinder but were transferred to Various in 2013.60 There has been no recorded

website activity at these domains, and the name servers have been FriendFinder

name servers since 2011.61

56
JTX 334 ¶ 103.
57
Id. ¶ 105; Tr. 403-04 (Palage).
58
JTX 334 ¶¶ 106-07.
59
Tr. 144 (Shashoua), 405 (Palage); JTX 334.
60
Tr. 405; JTX 334.
61
Tr. 405-06 (Palage).

12
 On October 27, 2009, ConfirmID, a Various subsidiary, purchased a portfolio

of adult entertainment domain names for $120,000.62 The portfolio included

nakedfemalebodybuilder, nakedwithfood, boobfarm, and boob-squad.63 Initially,

these domains continued to host the previous owner’s content, but all except

boobfarm later became inactive.64 Boobfarm continued to be used to direct traffic

to AdultFriendFinder co-brands and other FriendFinder websites.65 From 2012 until

the close of the transaction at issue, these domains were all registered to

ConfirmID.66

Missblizz was registered to Anthony Previte, the Chief Operating Officer of

FriendFinder in 2011.67 The registrant was transferred to a default “Host Master”

account associated with FriendFinder on November 10, 2014.68 The domain has not

been active since around 2012.69

62
JTX 28; JTX 29; Tr. 145-46 (Shashoua), 407 (Palage).
63
Tr. 146-47 (Shashoua).
64
Id. at 407 (Palage); JTX 334.
65
Tr. 407-08; JTX 334 ¶¶ 118-21.
66
Tr. 406-07; JTX 4; JTX 334.
67
Tr. 134 (Shashoua), 408 (Palage); JTX 334.
68
Tr. 408-09 (Palage); JTX 334.
69
Tr. 409 (Palage); JTX 334.

13
 d. The “silo” system
In 2012, FriendFinder began an accounting initiative to properly allocate

expenses and revenues to the appropriate entities and business units.70 To aid in this

transition and to give employees an understanding of how to attribute revenue and

costs, managers and executives, including Holland, Fox, and Belous, received a

“Coding Cheat Sheet,” which divides FriendFinder’s internet assets into “silos.”71

The “Casual Dating Silo” includes hornywife and bookofsex, among others, grouped

under AdultFriendFinder.72 The attributed company for the Casual Dating Silo is

listed as Various.73 The “Paysite Silo” includes websites like penthouse.com,

danni.com, dammo.com, and hotbox.com.74 The attributed companies for the

Paysite Silo are listed as GMCI, Danni Ashe, Inc., and Tan Door Media Inc.—all

Penthouse-associated companies.75 No Disputed Domains or dating websites are

listed in the Paysite Silo.76 The last page of the cheat sheet includes a list of “Domain

70
JTX 76; Tr. 149-51 (Shashoua), 594-95 (Holland).
71
JTX 76; JTX 77; Tr. 152, 154 (Shashoua), 665-67 (Belous); Holland Dep. 235.
72
JTX 76; Tr. 154-56 (Shashoua).
73
JTX 76; Tr. 154-56 (Shashoua), 596-97 (Holland).
74
JTX 76.
75
Id.; Tr. 158 (Shashoua).
76
Tr. 159 (Shashoua).

14
Names & Back-end Acronyms,” which lists hornywife and bookofsex with the

“Ffadult” back-end acronym, meaning AdultFriendFinder, as opposed to “Ph” for

Penthouse.77

3. FriendFinder prepares to sell Penthouse
In 2014, FriendFinder began exploring the possibility of selling the Penthouse

business because Penthouse did not fit within FriendFinder’s “core business” and

was losing money.78 FriendFinder engaged SSG Advisors, LLC (“SSG”), an

investment banker, to prepare a confidential information memorandum (the

“Memorandum”) to market Penthouse.79 The Memorandum provides a description

of the Penthouse online business, which includes penthouse.com, danni.com,

hotbox.com, and dammo.com, biographies of Holland and Belous, and a chart

identifying the Penthouse-associated subsidiaries for sale (the “Acquired

Companies”).80

77
Id.
78
Tr. 23 (Buckheit), 164 (Shashoua).
79
JTX 113; Tr. 164-65 (Shashoua).
80
JTX 113. The Acquired Companies are: Danni Ashe, Inc.; GMCI Internet
Operations, Inc.; GMI On-Line Ventures, Ltd.; General Media Communications,
Inc.; General Media Entertainment, Inc.; Great Ganilly Enterprise, Ltd.; NAFT
Media, S.L.; Network Domain Services N.V.; PMGI Holdings Inc.; Penthouse
Clubs International Establishment; Penthouse Digital Media Productions Inc.;
Penthouse Images Acquisitions, Ltd.; Pure Entertainment Telecommunications,
Inc.; Streamray Studios, Inc.; Tan Door Media Inc.; and XVHUB Group Inc. PTO
¶ 11.

15
 FriendFinder established a data room called the “Smart Room” to allow

prospective buyers access to documents associated with the Penthouse business. 81

Ballou and her assistant uploaded documents to the Smart Room.82 On June 12,

2014, Holland asked Fox to create a list of domains owned by GMCI. 83 Fox asked

Doug Canny, a FriendFinder employee, to generate this list by searching all domains

containing “Penthouse,” “pet,” “key,” “forum,” “variations,” and “letters,” as well

as “Danni’s,” “Hotbox,” and “Dammo.”84 Canny sent these lists to Holland and

Fox.85 Ballou instructed her assistant to upload the lists to the Smart Room (the

“Data Room Lists”).86 These lists included 1,074 domains, none of which were the

Disputed Domains, and were represented as the list of Penthouse domains in various

Penthouse and FriendFinder documents.87 For instance, in connection with the sale,

81
Tr. 170-71, 197 (Shashoua), 249-54 (Ballou).
82
Tr. 251 (Ballou), 474-75 (Holland).
83
JTX 98.
84
JTX 99; JTX 101.
85
JTX 101.
86
Tr. 256-57, 319 (Ballou).
87
JX 113, at FFN00060555 (the Memorandum); JTX 122 (an investment overview
document for prospective investors); JTX 166 (information certificates for potential
investors); JTX 171, 172 (Penthouse application for media liability insurance); JTX
176 (information sent to potential Penthouse investor).

16
Penthouse sought to obtain errors and omissions insurance coverage.88 On February

5, 2016, Belous sent Shashoua a draft of the application in order to allow Penthouse

to obtain a post-closing insurance quote for one of the Acquired Companies,

Penthouse Digital Media Productions, Inc. (the “Application”).89 On the

Application, Belous submitted the Data Room Lists as the documentation of

websites “for which coverage is desired.”90

4. The lead-up to the transaction
Around mid-2014, Holland began considering acquiring Penthouse. Holland

felt that she could revitalize the business and assembled a team to help her with that

goal. In July 2014, she engaged Hogan Lovells as legal counsel to represent her in

the buyout.91 In November 2014, she hired Noble Financial to “walk [her] through

the process” of a management buyout.92 Holland’s initial efforts halted, however,

when her investors backed out.93 Unbeknownst to Holland, FriendFinder continued

88
JTX 171; Tr. 644-46 (Belous).
89
JTX 171.
90
Id.
91
Tr. 473:1-13 (Holland).
92
Id.
93
JTX 124; Tr. 474 (Holland).

17
discussions with AVN, “a big trade magazine in the business.”94 AVN initially

worked with Holland as a financial partner for her proposed purchase of Penthouse.95

AVN signed a non-circumvention agreement with Holland in connection with their

potential partnership.96

At the same time, FriendFinder also engaged in discussions with Vert Capital

(“Vert”).97 Although Vert signed a contract to purchase Penthouse, this deal fell

through at the end of 2015.98 Holland got back on track and submitted a bid for

FriendFinder.99 Meanwhile, AVN expressed interest in purchasing Penthouse for

itself in violation of its non-circumvention agreement with Holland. Holland

eventually learned of AVN’s interest through FriendFinder. FriendFinder accepted

Holland’s bid on the condition that she agree to release AVN from the non-

circumvention agreement if she could not close the deal before February 12, 2016.100

Although the exclusivity period expired on February 12, Holland was given an

94
Tr. 484-85 (Holland).
95
Id. at 484-86 (Holland).
96
Id.
97
Id. at 199-200 (Shashoua).
98
Id.
99
Id. at 484-86 (Holland).
100
Id. at 484-86, 492-93 (Holland).

18
extension until February 19, but FriendFinder told her they would not extend it

beyond that date.101 After that date, the magazine would miss its print deadline and

lose distribution.

5. Pre-closing exchanges and closing
On February 15, 2016, Holland sent an e-mail to Ballou and Shashoua titled

“A few random points” stating:

The digital team was looking for a specific URL,
hornywives.com, that was a Penthouse site back in the
Guccione days. It shows as being registered to FFN but I
can’t find it on the URL list. In assembling the URL list
did anyone compare it to the list of URL’s that belonged
to Penthouse prior to the FFN acquisition? I’m concerned
that PH URLs that don’t specifically have PH embedded
are not easily identified.102

Ballou responded by telling Holland to “[p]repare a list of those URLs you believe

are part of the business that are not listed and we will review asap. It’s likely most

if not all will be a non-issue.”103 Holland replied to Ballou, copying Shashoua,

saying “Thanks.”104 Shashoua responded to Holland’s original e-mail by stating

“I’m sure we can straighten it out either before or after we fund if a site fell through

101
JTX 149; JTX 186; Tr. 323 (Ballou), 207 (Shashoua), 492-93 (Holland).
102
JTX 179.
103
JTX 180.
104
JTX 182.

19
the cracks.”105 Holland replied to Shashoua’s e-mail, copying Ballou, saying

“Agreed, no problem.”106

Fox e-mailed Holland on February 18, 2016, stating:

The account we want to take ownership of is the godaddy
login named “penthouse2010” and the domains contained
within it, AND any of the domains that you want that
reside in other accounts (both at godaddy and other
registrars). If we can slide this one past Diana it will be
nothing short of an awesome heist.107

Contrary to Fox’s suggestion, Penthouse did not try to obtain the “penthouse2010”

GoDaddy account.

The transaction closed on February 19, 2016 with FriendFinder and Streamray

as sellers and Penthouse as buyer.108 Penthouse acquired the stock of sixteen

subsidiaries of Friendfinder for $6,500,000.109 The transaction was memorialized in

a Stock Purchase Agreement (“SPA”), Transition Services Agreement (the “TSA”)

to continue certain shared services such as FriendFinder’s hosting of Penthouse’s

105
JTX 181.
106
JTX 178.
107
JTX 190.
108
JTX 186.
109
Id.; JTX 339.

20
website servers,110 and the Live Video Streaming Agreement (the “LVSA”) to share

revenue from the cams websites.111

6. The SPA’s relevant provisions

The SPA contains the following relevant language:

Section 3.10 Intellectual Property
(a) . . . the Acquired Companies own or otherwise have
the right to use all Intellectual Property that is used in, and
is material to, the operation and conduct of the business of
the Acquired Companies as currently conducted.

(b) To the knowledge of the Sellers, the Acquired
Companies have taken all reasonable steps that they
believe are necessary to maintain and protect their right,
title and interest in and to such Intellectual Property. . . .

(e) The representations and warranties in this Section 3.10
are the sole and exclusive representations and warranties
of the Sellers concerning Intellectual Property.

Section 8.4 Entire Agreement
This Agreement together with the Sellers Disclosure
Schedule and the Transaction Documents contains the
entire understanding of the parties hereto with respect to
the subject matter contained herein and supersedes all
prior agreements, covenants, representations, warranties
and understandings, oral and written, with respect thereto.

Section 8.15 Injunctive Relief

The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this

110
JTX 186, at FFN0010283-10304; Tr. 29-30 (Buckheit).
111
JTX 186, at FFN0010257-10282; Tr. 29-30 (Buckheit).

21
 Agreement were not performed in accordance with their
specific terms. It is accordingly agreed that the parties
hereto shall be entitled to seek an injunction or injunctions
to prevent breaches of this Agreement and to seek to
specifically enforce the terms hereof . . .

“Intellectual Property” means any of the following: (a)
All registered and unregistered trademarks, service marks,
trade names, trade styles and pending trademark and
service mark registration applications, including intent-to-
use registration applications; (b) all registered and
unregistered copyrights and applications for registration
thereof; (c) all domestic and foreign patents and patent
applications, (d) all Internet domain names, (e) all trade
secrets and (f) all graphic representations and logos
associated with Acquired Companies.112

7. Post-closing occurrences

a. Penthouse focuses on the domain lists
On February 29, 2016, Don Guarnieri, Penthouse’s digital media manager,

asked if Fox had a list of acquired domains.113 Fox replied, “No list. I was just

chatting with Andrey @ FFN about it. We’re both ready to go but neither of us have

an authoritative list of domains to work against. FWIW I’ve been asking Kelly for

that domain list for 3 weeks now.”114 Later that day, Belous sent a domain list to

112
JX 186, Annex 1-Definitions, at FFN0010236.
113
JTX 196; Tr. 498 (Holland).
114
JTX 196.

22
Guarnieri as an attachment to an e-mail titled “List of Sites,” and Guarnieri

forwarded this on to Fox.115

On March 1, 2016, Fox e-mailed Holland, Belous, and Guarnieri and asked,

“Where is the rest of the list btw. What I received from Don only contains penthouse

and danni related names. I thought someone had gone through their list of 4k+

names and cherry picked a bunch of them? What happened to all those, is there a

more complete list?”116 Holland replied, “. . .Within the data room and as part of the

sale process I’ve had access to the ‘Penthouse’ asset list but I have never had the

complete FFN list. I can request it, they can object, before I put it on their radar do

we have it from another source.”117 Fox then sent a link to the “complete FFN list”

and suggested that they “[d]ownload the entire list while you still have network

access.”118 Guarnieri replied, “Got it.”119 Later that day Guarnieri e-mailed Holland

stating he had the “list from [Belous] that was labeled WEBSITE LIST – Question

4.A[.] Hotbox.com and .net are on the list. Only domain missing that I was hoping

115
JTX 195.
116
JTX 201.
117
Id.
118
Id.
119
Id.

23
to get was hornywife.com[.] Also have access to FFN big list of domains and

downloaded the entire 4,000+ list for anything else that looks good.”120

b. A new list is created with the Disputed Domains

On March 3, 2016, Guarnieri sent an e-mail titled “additional domains to be

transferred to PGMI” to Holland and Slaughter with an attached list of 145 additional

domains, which included eight of the Disputed Domains, excluding bookofsex.121

On March 7, Guarnieri sent an updated list to Holland and Fox where he removed

photofriendfinder from the list but added other names to the list. This list included

all nine Disputed Domains.122

On March 4, 2016, Fox e-mailed Ballou to update her on the progress of the

transition. In regards to domains, he said, “This is a job to get started next week.

I’ll be working closely with Andrey to transfer the domains of primary importance

in small batches, and the less important ones in larger batches. This task will take

some time but will be steady progress once we begin.”123

120
JTX 198.
121
JTX 202.
122
JTX 206.
123
JTX 204.

24
 On March 18, 2016, Holland e-mailed Ballou, Shashoua, and Belous a list of

additional domains that “are part of Penthouse and Danni’s.”124 The list included all

nine Disputed Domains (the “March 18 List”). Ballou replied that she would review

the list with Andrey “and revert back.”125

Three days later, Ballou asked Holland where she found the list and said:

I’m just a few URL’s in and I see some that are not PH- ie
bondage.com, Streamray.com etc. while others that are
clearly PH and some that were already listed on the
SmartRoom URL lists (Variations URL’s for example)

I am going to have all of the ownerships checked but if
you can tell me where you sourced it – it might be easier.126

Ballou then asked Kam Miller, an employee in the IT department, to check the

domain registration records and find the registrant of each domain.127 Miller sent a

list of the domains with the registrants and bolded the domains that were not

registered to an Acquired Company.128 All nine Disputed Domains appear on

Miller’s list and are categorized as FriendFinder domains.129

124
JTX 210.
125
JTX 211.
126
JTX 213.
127
Tr. 272 (Ballou).
128
Id. at 272-76; JTX 4.
129
JTX 4.

25
 On March 26, 2016, Belous e-mailed Ballou regarding the source of the list

and said Holland “got this list from the FFN master list as many of these names

contain ‘pet’ and other PH marks, they should fall under the category of Penthouse

sites.”130 Ballou replied that they “had id’d all ownership of URL’s on the list and

will add all the PH ones to the transfer list,” but Ballou did not identify or otherwise

share the transfer list referenced in her e-mail.131

Holland also e-mailed Ballou on March 24, explaining that “[t]he individual

girl sites are Dannis. This is the launch of Horny Wife in 1999” and attaching a

January 1999 cover of Penthouse magazine on which a story regarding

hornywife.com is prominently featured.132 Ballou replied that they were “going to

go by WhoIs ownership. Hornywife.com is owned by Various. The final approved

list has already been sent to our IT department for inclusion in the original 6 lists

that were in the SmartRoom.”133 Holland replied, “With all due respect that means

nothing at all because Various transferred URL’s when we bought it. That has, since

1999, been a Penthouse site.”134 Belous then sent Holland a link showing that in

130
JTX 217.
131
Id.
132
JTX 216.
133
Id.
134
JTX 221.

26
2005 the hornywife website was redirected to penthouse.com.135 Holland forwarded

this along to Shashoua, Ballou, Guarnieri, and Slaughter.136 Ballou responded,

“Where is [hornywife] directed now?”137

On April 25, 2016, Guarnieri sent a list of 1,193 domains, including the

Disputed Domains, to Fox and Holland, and stated “[o]bviously there are some

domains FFN will not transfer.”138 The next day he sent an updated list.139 He

removed the domains that “were clearly FFN” and stated that he believed Penthouse

had “a claim on all of the domains listed.”140 Holland responded to this stating that

six domains on the list were “seemingly, not ours”: sexy-panty-hose-pictures.com,

sexydealfinder.com, sexyflashdeals.com, photobookofsex.com, and

singlesofturkey.com.141 Guarnieri answered that he had removed these domains and

that they were copied in by mistake.142 Belous provided the WhoIs information for

135
Id.
136
Id.
137
JTX 222.
138
JTX 231.
139
JTX 240.
140
Id.
141
JTX 242.
142
Id.; JTX 243.

27
five of the domains, including photobookofsex, and said, “All owned by Various

Inc. and registered on the same date in 2012.”143

c. Disputes arise

Beginning in March 2016, Penthouse disputed the amount it owed under the

LVSA. By April 25, 2016, Buckheit gave the order to stop all work under the TSA,

which included the domain transfers, because Penthouse had not paid its invoices

under the LVSA. On April 25, 2016, he sent an e-mail to Fox, copying Ballou,

Slaughter, Belous, Shashoua, and Holland saying “The ball is in your court.”144

Holland responded, “Actually, the ball is now in Hogan Lovell’s court.”145

After various failed attempts to resolve the issue,146 on April 26, 2016, Penthouse

terminated the LVSA.147 As part of the termination, Penthouse agreed to pay the

corrected amount due less a 10% discount.148

On the same day, Slaughter forwarded an e-mail titled “Notice of Breach” to

Buckheit and Shashoua with a letter attached from Hogan Lovells stating that

143
JTX 243.
144
JTX 232; JTX 239.
145
JTX 236.
146
JTX 232; JTX 238.
147
JTX 248.
148
Id.

28
FriendFinder had intentionally and willfully breached the TSA and demanding

FriendFinder cease and desist its breach.149

d. The April 28, 2016 e-mail

On April 28, 2016, Slaughter sent an e-mail addressed to Buckheit, but also

included Shashoua, Ballou, Holland, Belous, Fox, Guarnieri, and Russ Cashdan

(Penthouse’s Hogan Lovells counsel) as recipients, as well as five other

FriendFinder employees. He wrote in relevant part:

FFN breached the TSA by improperly interrupting service
without cause. Despite our notice, FFN by your personal
instruction has intentionally failed to cure the breach thus
damaging our ability to transition and operate. . . .

As a courtesy and pursuant to the LVS agreement, we
provided FFN 5 days to terminate. You personally and
unilaterally choose to terminate the services ahead of the
expiration of the notice. Furthermore, and to compound
the matter, you attempted to deceive a Penthouse
employee into entering an agreement binding Penthouse.
...

Attached please find a list of Penthouse assets that you
personally, and other FFN employees have refused to
provide in direct violation of the agreements between us.

I will continue to work with the FFN staff directly to
complete the transition, but please [be] advised: you are
personally prohibited from contacting any Penthouse
employee and all Penthouse personnel have been
instructed not to accept or answer any further
communication from you. . . .

149
JTX 245.

29
 FFN’s breach of the TSA, and your personal behavior
have caused, and continue to cause irreparable harm to
Penthouse.150

This e-mail contained an attachment with a list of domain names that combined the

Data Room Lists and the March 18 List (the “April 28 List”).151 The supplemented

domains from the March 18 List were bolded, underlined, indented, colored in blue

font, and marked as “Additional” to differentiate them from the original Data Room

Lists.152 The attachment also stated that only two of the domains on the list had been

transferred to date and demanded that all the listed domains be transferred by May

2.153

That night, Buckheit sent an initial e-mail and stated:

Don,

As I’ve said, I am your point of contact in our
organization. If you have needs to address, you must do
so directly with me. You have no reasonable basis to insist
otherwise. My tendency not to necessarily agree with you
is insufficient grounds to establish an alternative
communication path.

As for the TSA, services were resumed as soon as you
wired the money.

150
JTX 251.
151
Id.
152
Id.
153
Id.

30
 We have attempted to transfer some of the domains to you
when you requested, but you were unable to accept them.
This is documented and we can send you this
documentation.154

The next day, Buckheit sent a second e-mail and stated in relevant part:

Pursuant to your demand that we transfer control of all
domains on the list attached to your e-mail from yesterday
evening by May 2, we are ready to do so, with the
exception of your improper demand that we transfer
control of stonerfriendfinder.us, which is not a domain that
was purchased from FriendFinder Networks Inc.

Would you please let us know a time today (April 29) or
Monday (May 1) that works for you to receive DNS
control of all of these domains? Thereupon we will initiate
the complete transfer at that time. . . .

Moving on the other demands in your letter, we disagree
with your characterization that Penthouse has “repeatedly
asked for these items since the close of escrow. In fact,
we have direct documentation otherwise, that Penthouse
asked we hold off on transferring the full list of domains
when we stood ready to do so because of an express desire
to do a few at a time. We also dispute any right you have
under the TSA to set deadlines. As you know, the
requirement is that FFN attend to these issues in the
normal course of business.155

Ballou also sent an e-mail that day to Fox and various FriendFinder team

members attaching Slaughter’s list, which stated: “Here is the list the only URL we

154
JTX 340.
155
JTX 261.

31
are not transferring is stonerfriendfinder.us. Otherwise this is a final list.”156 Ballou

admitted at trial that she was “under a lot of pressure at that time to wrap it up, to get

it done, you know, to get the team moving on the continual transfer of domains, and

I made a mistake. I didn’t look carefully enough at the list.”157 Buckheit admitted

at trial that he did not review the April 28 List.158

e. The domain transfer and subsequent events
By May 2016, FriendFinder transferred substantially all of the domains on the

April 28 List.159 After continuing disagreements between the parties, Penthouse

terminated the TSA on May 16, 2016.160 The termination notice stated that the

termination would be effective on May 31, 2016, and “[a]t such time, all property

and assets of [Penthouse] or any of its subsidiaries (including the accounting records,

intellectual property and other data and information), need to have been, or shall be,

transferred” by FriendFinder to Penthouse.161

156
JTX 255.
157
Tr. 298-299 (Ballou).
158
Tr. 41, 97-98 (Buckheit).
159
JTX 253; JTX 255; JTX 259; JTX 271; JTX 274.
160
JTX 282.
161
Id.

32
 By May 29, 2016, the Disputed Domains were being directed to

penthouse.com.162 On May 29, 2016, Penthouse began to receive emails from

hornywife members inquiring why they were being redirected to penthouse.com.163

Around this time, FriendFinder noticed a decline in revenue and was receiving

complaints from affiliates that customers were having trouble logging in. Upon

investigation, FriendFinder realized that hornywife and bookofsex were being

redirected to penthouse.com.164 FriendFinder employees attempted to identify the

issue, and Buckheit expressed suspicions that the transfer of domains to Penthouse

may be the issue.165

FriendFinder contacted Fox who stated that the redirection was intentional, as

these websites were properties of Penthouse.166 Buckheit responded, “How can

these be properties of Penthouse? Were they transferred by mistake? They have

162
JTX 322.
163
JTX 289; JTX 288; JTX 287; Tr. 757 (Fox).
164
JTX 286; JTX 290.
165
JTX 308; Tr. 48 (Buckheit).
166
JTX 298.

33
nothing to do with Penthouse.”167 FriendFinder officers and employees then

reviewed the April 28 List and realized that it contained these domains.168

The next day, Ballou e-mailed Fox regarding hornywife and bookofsex stating

that they were being directed at penthouse.com even though “the Whois data still

shows Various as the owner and WayBack shows BookofSex clearly a cams.com

co-brand as of March 9th. Same thing for Hornywife.com.”169 Ballou then contacted

Penthouse’s outside counsel at Hogan Lovells and demanded that Penthouse “unlock

and return these domains to Various Inc. at once as their refusal to do so since they

have been notified has caused and will continue to cause irreparable damage as our

customers are being redirected away to penthouse.com.”170 Ballou also asked

Belous to instruct Fox to redirect the websites to FriendFinder as a “temp

solution.”171 Buckheit spoke with Fox during this time, stating that a mistake had

been made in the transfer, and Fox redirected the websites to FriendFinder servers

that same day.172

167
Id.
168
Id.
169
JTX 294.
170
JTX 302.
171
JTX 293.
172
JTX 295; Tr. 50-51 (Buckheit).

34
 Over the next few days, Ballou sent Penthouse’s counsel documents

attempting to show Various’s ownership of hornywife and bookofsex. This

included: (1) a WhoIs report for hornywife showing Various as the owner; (2)

screenshots from January 2016, March 2015, and September 2011 of hornywife

showing Various in the footer and the website as a co-brand for AdultFriendFinder;

(3) a Sample Medly Insertion Order listing hornywife as a co-brand of

AdultFriendFinder; (4) a WhoIs report for boob-squad.com showing Various as the

owner; and (5) a Various letter showing intent to purchase the boob-squad.com

domain portfolio in 2009.173

Meanwhile, Holland requested WhoIs information on the Disputed Domains

from a Penthouse contractor, Lucky Smith.174 Smith answered:

173
JTX 307.
174
JTX 306. Penthouse objects to the use of JTX 306 and JTX 311 on hearsay grounds.
These documents, however, fall under an exception to the hearsay rule as they are
“Records of Regularly Conducted Activity.” See D.R.E. 803(6) (“A memorandum,
report, record or data compilation, in any form, of acts events, conditions, opinions
or diagnoses, made at or near the time by, or from information transmitted by, a
person with knowledge, if kept in the course of a regularly conducted business
activity, and if it was the regular practice of that business activity to make the
memorandum, report, record or data compilation, all as shown by the testimony of
the custodian or other qualified witness . . .”). “In order to be a qualified witness,
the witness ‘need only have knowledge of the procedures under which the records
were created’” and

must attest to the following foundational requirements of Rule
803(6): ‘(1) that the declarant in the records had knowledge to
make accurate statements; (2) that the declarant recorded
statements contemporaneously with the actions which were the
35
 Short answer: Boob-Squad.us looks like the only easy
argument. Long answer pasted below. . . .

Boob-squad.us – DANNI (2003)

Boobfarm.com – ARS early, continued as a mere feeder
site in current state. Not indexed since 2008, so we know
nothing has changed. Not sure how this got on your list.
See no references to Danni, FFN or PH anywhere.

Misslilizz.com – can’t find anywhere. Shows available on
NetSol, so maybe I’m spelling it wrong. . . .

Nakedfemalebodybuilder – started as sexhit by 2005 was
a pure feeder site same in 2007 looks to have gone offline
in Jan 2014 NetSol says FFN owns it since 2004

subject of the reports; (3) that the declarant made the record in
the regular course of business activity; and (4) that such records
were regularly kept by the business.’

McCoy v. State, 89 A.3d 477 (Del. 2014)(TABLE) (quoting Palomino v. State, 2011
WL 2552603, at *3 (Del. Super. Apr. 4, 2011)) (citing Trawick v. State, 845 A.2d
505, 509-09 (Del. 2004)). At trial Holland testified that Smith was a digital
consultant and a content manager for Penthouse. Tr. 548. Belous testified that, as
general counsel and senior vice president of Penthouse, she regularly addressed
issues of intellectual property concerning assets of the company, regularly sent e-
mails to outside vendors like Kavanagh as part of that work, and kept records of
those e-mails. Tr. 688. Belous and Holland both sought information regarding
Penthouse’s ownership of certain domain names from reputable sources in their
capacities as managers of the company. Furthermore, Smith and Kavanagh could
be considered agents or servants of Penthouse in researching this information on
behalf of Holland and Belous. See D.R.E. 801(d)(2) (a statement is not hearsay if
it is offered against a party and is a statement by her agent or servant concerning a
matter within the scope of his agency or employment, made during the existence of
the relationship). Finally, these documents also are admissible to test the credibility
of Holland and Belous as to their testimony that WhoIs data is not reliable to
determine ownership of domain names. See D.R.E. 801(d)(1) (a statement is not
hearsay if the declarant testifies at the trial or hearing and is subject to cross-
examination and the statement is inconsistent with her testimony).

36
 Photobookofsex.com Various set up in May of 2011.
Never did anything with it. No archives.

Photogalleryofsex.com Same. No Archives. Also
Various, May 2011 setup.175

On June 1, 2016, Belous e-mailed Edward Kavanagh of CSC to find out

information on hornywife and boob-squad.us.176 Kavanagh told Belous that boob-

squad.us was registered to Jason Quinlan in 2005, but in 2010, ConfirmID became

the owner, using a FriendFinder email address of sa@ffn.com, and in 2016, it moved

from ConfirmID to Various, using the FriendFinder e-mail of

hostmaster@ffn.com.177 Additionally, according to Kavanagh, the first hornywife

record is from 2001, where it is registered to GMCI, and it stays listed this way until

November 22, 2011, when it is changed to Various as the owner.178

Penthouse’s counsel sent a letter to FriendFinder’s counsel on June 3, 2016

asserting that the websites were not mistakenly transferred to Penthouse, but that

representatives of both entities:

heavily negotiated the list of websites to be transferred . .
. over many weeks with the final List distributed by Diana
Ballou . . . in an e-mail . . . on which not one, not two, not
three but 6 other [FriendFinder] addressees were copied.

175
JTX 306.
176
JTX 311.
177
Id.
178
Id.

37
 All of the Nine Websites were included in the final List
distributed by Ms. Ballou in the April Email.179

C. Procedural History
On June 8, 2016, FriendFinder filed this action seeking a declaratory judgment

as to FriendFinder’s ownership of the Disputed Domains and injunctive relief

against Penthouse ordering the restoration of control over the Disputed Domains to

FriendFinder. The complaint also asserts that Penthouse unlawfully converted the

Disputed Domains.

On June 28, 2016, Penthouse filed its answer and counterclaims seeking its

own declaratory judgment of ownership over the Disputed Domains and damages to

compensate for the loss of the use of the Disputed Domains due to its voluntary

agreement to redirect the domains to FriendFinder websites during the course of this

action. On June 30, 2016, the parties stipulated to and this Court entered a status

quo order (“Status Quo Order”) mandating that Penthouse redirect all Disputed

Domains to FriendFinder, cooperate with any regulatory or legal obligations or any

reasonable requests from FriendFinder regarding the Disputed Domains, and refrain

from changing the source code or user interface of the Disputed Domains or

interfering with FriendFinder’s placement of advertising or receipt of advertising

revenue from the Disputed Domains. Under the Status Quo Order, FriendFinder was

179
JTX 316.

38
ordered to continue paying the domain registration fees and to provide a figure

representing the gross, unaudited revenue for the Disptued Domains on the first of

every month from August-November 2016. This Court held trial on November 30,

December 1, and December 2, 2016, and post-trial argument, fittingly for this case,

was held on February 14, 2017.

II. ANALYSIS
FriendFinder brings this action asserting that Penthouse did not acquire the

Disputed Domains under the SPA or any other agreement because these domains

were not material to the Penthouse business as it was conducted immediately prior

to the transaction. Thus, FriendFinder argues, Penthouse has converted the Disputed

Domains, and FriendFinder is entitled to an injunction restoring the Disputed

Domains to FriendFinder.

Penthouse claims the parties reached two separate, valid, binding agreements

in February and April that unequivocally grant the Disputed Domains to Penthouse.

Thus, Penthouse did not convert the Disputed Domains, and Penthouse seeks

damages to compensate for revenue lost during the pendency of this litigation while

the websites were redirected to FriendFinder.

39
 A. The SPA Governs the Rights to the Disputed Domains
This Court is “[g]uided by ‘Delaware’s well-understood principles of contract

interpretation.’”180 “Under general principles of contract law, a contract should be

interpreted in such a way as to not render any of its provisions illusory or

meaningless.”181 “In a dispute involving contract interpretation, the court must first

examine the entire agreement to determine whether the parties’ intent can be

discerned from the express words used, or alternatively, whether its terms are

ambiguous.”182 “If the terms of the contract are ‘clear on their face, . . . the court

must apply the meaning that would be ascribed to the language by a reasonable third

party.’”183 “Ambiguity does not exist simply because the parties disagree about what

the contract means.”184 “Rather, contracts are ambiguous ‘when the provisions in

180
United Rentals, Inc. v. Ram Hldgs., Inc., 937 A.2d 810, 830 (Del. Ch. 2007) (quoting
HIFN, Inc. v. Intel Corp., 2007 WL 1309376, at *9 (Del. Ch. May 2, 2007).
181
Sonitrol Hldg. Co., v. Marceau Investissements, 607 A.2d 1177, 1183 (Del. 2012).
182
Comrie v. Enterasys Networks, Inc., 837 A.2d 1, 13 (Del. Ch. Sept. 4, 2003).
183
Id. (quoting True North Commc’ns, Inc. v. Publicis, S.A., 711 A.2d 34, 38 (Del. Ch.
1997)).
184
United Rentals, Inc., 937 A.2d at 830 (citing Nw. Nat’l Ins. Co. v. Esmark, Inc., 672
A.2d 41, 43 (Del. 1996); Seidensticker v. Gasparilla Inn, Inc., 2007 WL 4054473,
at *2 (Del. Ch. Nov. 8, 2007)).

40
controversy are reasonably or fairly susceptible of different interpretations or may

have two or more different meanings.’”185

The parties do not argue that there exists any ambiguity in any contract

created. Instead, they dispute which contract (the SPA) or purported contract (the

February or April e-mails) governs the dispute. Section 3.10(a) of the SPA provides

that “the Acquired Companies own or otherwise have the right to use all Intellectual

Property that is used in, and is material to, the operation and conduct of the business

of the Acquired Companies as currently conducted.”186 The definition of

“Intellectual Property” expressly includes domain names. It provides as follows:

185
Id. (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d
1192, 1196 (Del. 1992)).
186
JTX 186 ¶ 3.10(a). Penthouse argues that Section 3.10 expired at closing under
Section 7.1 of the SPA, which provides: “The respective representations and
warranties of Sellers and Buyer contained in Article III and Article IV . . . shall
terminate and be of no further force or effect as of the Closing Date . . .” Def.’s
Opening Br. 38 n. 34; JTX 186, at 23. FriendFinder responds by pointing to Section
5.10, entitled “Further Assurances,” which states: “Buyer and Sellers shall each . . .
take such further action as may be reasonably required or desirable to carry out the
provisions of this Agreement and to consummate the transactions contemplated
hereby. Upon the terms and subject to the conditions of this Agreement, Buyer and
Sellers shall each use its commercially reasonable efforts to take or cause to be taken
all actions and to do or cause to be done all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement . . .” JTX 186, at 19; Pl.’s Answering
Br. 20. I need not decide this, however, because as discussed below, the parties’
subsequent conduct evidences their intent to continue operating under the test set
out in the SPA—to only transfer those domains that were Penthouse assets at the
time of closing.

41
 (a) All registered and unregistered trademarks, service
marks, trade names, trade styles and pending trademark
and service mark registration applications, including
intent-to-use registration applications; (b) all registered
and unregistered copyrights and applications for
registration thereof; (c) all domestic and foreign patents
and patent applications, (d) all Internet domain names, (e)
all trade secrets and (f) all graphic representations and
logos associated with Acquired Companies.187

Thus, the SPA anticipates that Penthouse has the right to domain names that were

“used in, and [] material to, the operation and conduct of the business of the Acquired

Companies” at the time of closing.188 Further, items (c)-(f) in the definition of

Intellectual Property are all separated by commas, suggesting that the phrase

“associated with Acquired Companies” applies to items (c)-(f). The phrase

necessarily must apply to the preceding items, because if not, there is no limitation

on the broad categories. This would lead to an absurd result that would “conflict[]

with the agreement’s overall scheme.”189 Additionally, the application of the phrase

“associated with Acquired Companies” to the broad categories listed in the

definition of Intellectual Property is consistent with the limitation already expressed

in Section 3.10—that the relevant Intellectual Property is that which is “used in, and

187
JX 186, Annex 1-Definitions, at FFN0010236.
188
JX 186, Annex 1-Definitions, at FFN0010236.
189
Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 360 (Del. 2013) (citing GMG
Capital Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012)).

42
[] material to, the operation and conduct of the business of the Acquired Companies

as currently conducted.”190 Reading these two sections together, the SPA provides

for a guiding principle in determining which domain names should be transferred to

Penthouse—only those domains that were associated with, used in, or material to the

Penthouse business at the time of closing.191

B. No Prior or Subsequent Contract Was Created
Penthouse argues that the SPA is irrelevant because the February e-mail

exchange and the April e-mail exchange create valid, binding, and enforceable

contracts to transfer the Disputed Domains.192 But, an examination of those e-mails

and the parties’ conduct reveals the parties intended to operate under the SPA’s

guidance, proceeded to operate under the SPA’s test, and understood the SPA to

grant Penthouse only those assets that were associated with, material to, or used in

the Penthouse business at the time of closing.

From the beginning, Holland was only interested in those websites that

belonged to Penthouse. In June 2014, Fox asked Canny to “generate a list of all

190
JX 186, Annex 1-Definitions, at FFN0010236.
191
While neither party argues that the language of the SPA is ambiguous, I recognize
the potential for a conflict between the three categories listed. But, no conflict exists
here because, as discussed infra, none of the Disputed Domains meets any of the
three classifications at the time of closing. See Section II.C.
192
Def.’s Opening Br. 34.

43
GMCI domains we own[.] Kelly is interested in what we have.”193 On February 15,

days before the closing, Holland e-mailed Shashoua and Ballou to express her

concern that Penthouse domains that didn’t specifically have Penthouse embedded

in the name were not easily identified.194 In this same e-mail, she asserted that

hornywife “was a Penthouse site back in the Guccione days.”195 Ballou responded

by asking Holland to prepare a list of all the websites Holland believed “are part of

the business that are not listed” for FriendFinder’s review.196 Holland agreed.197

After the closing, both sides continued operating with the understanding that

Penthouse was only entitled to those websites that were part of the Penthouse

business. On March 18, Holland e-mailed Ballou, Shashoua, and Belous the March

18 List with all of the Disputed Domains included.198 Ballou replied that she would

review the list and revert back.199 On March 21, Ballou responded that while there

were certain domains that were clearly Penthouse-related, she saw some domain

193
JTX 98; JTX 99.
194
JTX 179.
195
Id.
196
JTX 180.
197
JTX 182.
198
JTX 210.
199
JTX 211.

44
names that were clearly not Penthouse-related such as bondage.com and

streamray.com, and she would “have all of the ownerships checked.”200 Holland

did not challenge those two domains or Ballou’s plan to check ownerships. Instead,

she provided evidence of Penthouse’s ownership of certain domains she believed

belonged to Penthouse. On March 24, Holland stated that the “individual girl sites”

are associated with dannis.com, a Penthouse website, and hornywife was launched

in 1999 before the original Penthouse/FriendFinder merger by being featured

prominently in Penthouse Magazine.201 Ballou responded that FriendFinder would

rely on WhoIs ownership, and hornywife belongs to FriendFinder because it is

registered to Various.202 Holland replied by providing further arguments regarding

hornywife’s association with Penthouse. She explained that WhoIs “means nothing

at all because Various transferred URL’s when we bought it. [Hornywife] has, since

1999, been a Penthouse site.”203 Holland sent a link from 2005 showing hornywife

being directed to penthouse.com to Shashoua, Ballou, Guarnieri, and Slaughter.204

200
JTX 213.
201
JTX 216.
202
Id.
203
JTX 221.
204
Id.

45
Ballou responded by asking “Where is [hornywife] directed now?”205 Although the

parties may have disagreed about whether hornywife was a Penthouse website, both

parties understood that it necessarily must be associated with Penthouse in order to

be transferred in the transaction.

In fact, when there was any indication that Penthouse would receive websites

not associated with the Penthouse business, Holland corrected the mistake. When

Fox e-mailed Holland that Penthouse should take ownership of the entire

penthouse2010 GoDaddy account and that “slid[ing] this one past Diana” would be

“nothing short of an awesome heist,”206 Holland testified that she didn’t fully

understand at the time of the e-mail what the penthouse2010 account was and that

she “didn’t like the use of the term ‘heist.’”207 Holland told Tom that she did not

want to take ownership of any domains that did not belong to Penthouse on a

technicality.208 And Penthouse never made any effort to take control of that

account.209

205
JTX 222.
206
JTX 190.
207
Tr. 497-98.
208
Id. at 497-98, 575.
209
Id. at 575.

46
 In the same vein, when Guarnieri sent a list with the Disputed Domains to Fox

and Holland on April 26, Holland responded that six domains on the list were

“seemingly, not” Penthouse’s: sexy-panty-hose-pictures.com, sexydealfinder.com,

sexyflashdeals.com, photobookofsex.com, and singlesofturkey.com.210 Guarnieri

told her these domains were listed by mistake, and he would remove them.211 Belous

responded by providing WhoIs information for five of the domains, including

photobookofsex, stating they were all owned by Various and were registered on the

same day in 2012.212

Once the domains had been transferred, and FriendFinder noticed a decline in

revenue and was notified of complaints from customers, Buckheit asked Fox “How

can these be properties of Penthouse? Were they transferred by mistake? They have

nothing to do with Penthouse?”213 Ballou contacted Fox and stated that a WayBack

search shows bookofsex and hornywife as clearly a cams.com co-brand and the

210
JX 242.
211
JTX 242; JTX 243.
212
JTX 243.
213
JTX 298.

47
WhoIs data shows Various as the owner.214 Ballou then sent Penthouse’s counsel

documents attempting to show the true ownership of the websites.215

During this time, Holland and Belous also obtained the WhoIs information for

the Disputed Domains from outside contractors. Holland learned that boob-squad.us

was a danni-related website in 2003; photobookofsex and photogalleryofsex were

set up by Various in 2011; boobfarm had not been indexed since 2008; and

nakedfemalebodybuilder had been owned by FriendFinder since 2014.216 Belous,

meanwhile, was told that boob-squad.us was registered to ConfirmID in 2010, then

registered to Various in 2016, both with FriendFinder e-mail addresses, and

hornywife had been registered to Various since 2011.217

Contrary to Penthouse’s arguments, the evidence reveals that Penthouse had

no intent to and did not enter into any separate contracts with respect to the domain

names that would be transferred to Penthouse. At all relevant times, both sides were

operating with the understanding that the SPA required FriendFinder to transfer

domain names to Penthouse and provided clear guidance for identifying the

appropriate domains to be transferred—Penthouse is only entitled to those domains

214
JTX 294.
215
JTX 307.
216
JTX 306.
217
JTX 311.

48
associated with, material to, or used in the Penthouse business at the time of

closing.218

C. Penthouse is Not Entitled to the Disputed Domains under the SPA

Having established that the parties understood the transaction to contemplate

only those domains that were associated with, material to, or used in the Penthouse

business at the time of closing, I now turn to whether any of the Disputed Domains

fall under this description by examining multiple “indicia of ownership” used by

experts in the field.

The first indicator of ownership is the WhoIs data regarding registration.

Penthouse argues that WhoIs data is not reliable because (1) this information is not

kept up to date; (2) the various entities’ website registration became commingled

during the initial Various/Penthouse merger; and (3) FriendFinder “homogenized”

the domain registration to Various for all the websites.219 But, this argument fails

because, as discussed above, Penthouse representatives themselves turned to WhoIs

218
Penthouse’s argument that the parties entered into a different contract suffers from
other infirmities. “The elements necessary to prove the existence of an enforceable
contract are: (1) the intent of the parties to be bound, (2) sufficiently definite terms,
and (3) consideration.” Otto v. Gore, 45 A.3d 120, 138 (Del. 2012) (citing
Gallagher v. E.I. DuPont De Nemours & Co., 2010 WL 1854131, at *3 (Del. Super.
Apr. 30, 2010)). Penthouse has not put forth any evidence that the parties intended
to create another agreement beyond the SPA. Additionally, it is unclear what
consideration was exchanged for any purported contract.
219
Def.’s Opening Br. 7, 25 n.25.

49
information at numerous times throughout the process to determine the ownership

of the websites.220 Also, while Penthouse did provide evidence that there may have

been discrepancies and commingling that resulted in certain Penthouse-associated

websites being registered to Various,221 Penthouse did not suggest that the registrant

information was wrong for any of the Disputed Domains, except perhaps

hornywife.222

The WhoIs data for all the Disputed Domains suggests that they were

associated with the FriendFinder business at the time of closing. All of the contested

websites, except hornywife, were purchased by FriendFinder entities after the 2007

merger of Penthouse and Various. ConfirmID purchased nakedfemalebodybuilder,

nakedwithfood, boobfarm, and boob-squad in 2009; FriendFinder purchased

bookofsex and created photobookofsex in 2011 after the Facebook litigation.223

Bookofsex has been registered to Various since 2011; photobookofsex and

photogalleryofsex were registered to FriendFinder in 2011 and then Various in 2013;

nakedfemalebodybuilder, nakedwithfood, boobfarm, and boob-squad have been

registered to ConfirmID since 2012; and missblizz has been registered to Host

220
See JTX 179; JTX 243; JTX 306; JTX 311; see supra Section II.B.
221
Def.’s Opening Br. 14 n.15; Tr. 499-501 (Holland).
222
Cf. JTX 4; JTX 251.
223
JTX 334.

50
Master, a default FriendFinder account, since 2014.224 Penthouse has not presented

any evidence that these domains were ever registered to or owned by a Penthouse-

affiliated business or entity. Hornywife, however, was registered to GMCI, a

Penthouse-associated business, from at least 2001 until 2011.225 But, in 2011,

hornywife’s registrant changed to Various and has remained registered to Various

since that time.226

The second indicator of ownership is the websites’ historical use. The inactive

websites, except boobfarm, have had no activity since 2012.227 Boobfarm has

directed traffic to other FriendFinder-associated websites since at least 2013.228

Bookofsex has been maintained as an AdultFriendFinder co-brand since 2011, and

its copyright and terms of use show Various as the owner since that time.229

Bookofsex’s Splash Page represents its particular theme; however, when the user

logs in, the content is nearly identical to the other AdultFriendFinder co-brands.230

224
Id.
225
Id.
226
Id.
227
Tr. 405-09 (Palage).
228
Id.
229
JTX 5; Tr. 125-26, 144, 162-63 (Shashoua).
230
JTX 334, Exs. 2-3.

51
 Hornywife is the exception in terms of historical use because from 2005 until

2011, hornywife was directed to penthouse.com.231 In 2011, however, hornywife

became an AdultFriendFinder co-brand, and its Splash Page listed Various as the

copyright owner.232 Similarly to bookofsex, although hornywife has a unique Splash

Page, once the user logs in, its content is identical to other AdultFriendFinder co-

brands.233 Penthouse does not provide any evidence to the contrary or argue that

these websites were used by Penthouse at the time of closing.

The third and final indicator of ownership is the financing and accounting for

the websites. Bookofsex has been financed completely by Various since 2011, and

Various has recognized revenue for the website since 2011.234 Various also paid

affiliates, advertising costs, and search engine optimization costs for hornywife, and

it recognized the revenue from hornywife since 2011.235 Additionally, the internal

coding cheat sheet, received by Penthouse management, delineated the expenses and

revenues within the FriendFinder organization and grouped hornywife and

231
JTX 334.
232
Id.
233
JTX 334, Exs. 2-3.
234
JTX 5; Tr. 125-26, 144, 162-63 (Shashoua).
235
JTX 6; Tr. 155-161 (Shashoua), 398 (Palage).

52
bookofsex in the Casual Dating Silo under AdultFriendFinder.236 The back-end

acronym assigned to both hornywife and bookofsex was “Ffadult,” in line with other

AdultFriendFinder co-brands.237 Penthouse did not present any evidence that any of

the Acquired Companies recognized revenue or incurred any costs associated with

hornywife or the other Disputed Domains at the time of closing.

Although hornywife’s pre-2011 WhoIs records and use may leave some doubt

as to its proper ownership, the post-2011 WhoIs records, use, and financing make

clear that hornywife, like the other Disputed Domains, was not associated with, used

in, or material to the Penthouse business at the time of closing, and the SPA does not

contemplate its transfer to Penthouse. The indicia point to FriendFinder’s ownership

of all the Disputed Domains.238

D. FriendFinder is Entitled to the Return of the Disputed Domains
Because FriendFinder is the rightful owner of the Disputed Domains under

the SPA, Penthouse must return the domains to FriendFinder. Penthouse argues that

FriendFinder is not entitled this “extraordinary remedy” because FriendFinder has

236
JTX 76.
237
JTX 76.
238
Because I find that no agreement was formed and that the SPA controls, I need not
analyze FriendFinder’s mistake defenses or its request for reformation.

53
not met the elements required for a mandatory injunction.239 “To issue a mandatory

injunction requiring a party to take affirmative action . . . the Court of Chancery must

either hold a trial and make findings of fact, or base an injunction solely on

undisputed facts.”240 “The Court will only award a mandatory injunction in a clear

case, free from doubt.”241 In order for a movant to be entitled to a permanent

injunction, the movant must show “(1) actual success on the merits; (2) irreparable

harm; and (3) the harm resulting from failure to issue an injunction outweighs the

harm befalling the opposing party if the injunction is issued.”242 As discussed above,

after trial, FriendFinder has proven actual success on the merits because it has shown

that it rightfully owns the Disputed Domains.

Penthouse argues that FriendFinder cannot demonstrate irreparable harm

because (1) Section 8.15 of the SPA does not apply; (2) even if Section 8.15 of the

SPA does apply, it does not require an injunction; and (3) money damages can

239
Def.’s Pre-Trial Br. 44-47; Def.’s Opening Br. 50-51.
240
C&J Energy Servs., Inc. v. City of Miami Gen. Empls.’ Ret. Trust, 107 A.3d 1049,
1071 (Del. 2014).
241
ID Biomed. Corp. v. TM Techs., Inc., 1995 WL 130743, at *16 (Del. Ch. Mar. 16,
1995) (citing Video of Delaware, Inc. v. Silver Screen Video, Inc., 1984 WL 198609,
at *1 (Del. Ch. Dec. 28, 1984)).
242
Id. at *15 (citing Draper Commc’ns, Inc. v. Delaware Valley Broads., L.P., 505
A.2d 1283, 1288 (Del. Ch. 1985)).

54
adequately compensate FriendFinder for the Disputed Domains.243 Because I find

that the SPA is the governing document, Section 8.15 does apply. Section 8.15,

entitled “Injunctive Relief” states that the parties agree that irreparable harm will

result if any provision of the SPA is not performed as specified and that the parties

are able to seek an injunction to specifically enforce the terms of the agreement. 244

Although Penthouse is right that the injunction is not required under the SPA, I still

retain my discretion to grant the remedy. These domain names are assets and

property of FriendFinder, and under these circumstances, damages would not

adequately compensate FriendFinder for its losses.

Finally, Penthouse argues the balance of the equities does not favor

FriendFinder because FriendFinder’s own actions caused Penthouse to take

possession of the Disputed Domains.245 While this may be the case, this does not

prevent the Court from recognizing that allowing assets that are rightfully

FriendFinder’s to remain in the custody and control of Penthouse will harm

FriendFinder more than taking those domains that were not Penthouse’s at the time

243
Def.’s Pre-Trial Br. 45-46.
244
JTX 186, § 8.15.
245
Def.’s Pre-Trial Br. 47.

55
of closing away from Penthouse. I find that FriendFinder is entitled to an injunction

enforcing the return of the Disputed Domains against Penthouse.246

III. CONCLUSION

For the foregoing reasons, I find that the SPA controls and provides for the

transfer of domain names that are associated with, used in, or material to the

Penthouse business at the time of closing. FriendFinder has shown that under the

SPA, the Disputed Domains were associated with, used in, or material to the

FriendFinder business at the time of closing. Penthouse has not put forth any

evidence that it is entitled to any of the Disputed Domains under the SPA. Therefore,

I order Penthouse to turn over all the Disputed Domains to FriendFinder within 10

days of this opinion.

IT IS SO ORDERED.

246
FriendFinder asserts that Penthouse converted FriendFinder property. Pl.’s
Opening Br. 62. The complaint alleges that “[a]s a direct and proximate result of
PGMI’s wrongful control of the FFN Domains, FFN has suffered and/or will suffer
damages and financial injury.” Compl. ¶ 36. The relevant Disputed Domains were
turned back to FriendFinder within a day of Penthouse being notified of the transfer.
JTX 295. FriendFinder does not provide evidence of any damages or any further
harm it suffered as a result of any purported conversion.

56