Posts in Sanctions

Superior Court Orders Earn-Out Payment under Ambiguous Merger Agreement after Defendant Withheld Documents in Discovery

Fortis Advisors, LLC v. Dematic Corp., C.A. No. N18C-12-104 AML CCLD (Del. Super. Dec. 29, 2022)
Defendant acquired the plaintiff's hardware and software solutions business. The merger agreement required the defendant to make contingent payments if the company achieved performance targets. The targets were based on EBITDA calculations and sales of "Company Products," which the merger agreement referred to in a disclosure schedule that contained descriptions of products’ functionalities. Under the agreement, the defendant committed to incentivizing its sales force to sell Company Products and integrating the products into its own products and services. At the end of the earn-out period, the defendant reported low sales and EBITDA. From limited documentation, the plaintiff was able to determine that defendant based its calculations only on the acquired products, not an integrated portfolio. Plaintiff filed suit for breach of contract, alleging that the defendant either failed to incentivize its sales force and integrate the products, or had failed to properly account for "Company Products" when calculating contingent payments. More ›

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Chancery Rules that Multiple Egregious Discovery Abuses Lead to the Ultimate Sanction

DG BF, LLC v. Ray, C.A. No. 2020-0459-MTZ (Del. Ch. Nov. 19, 2021)
Delaware courts may impose sanctions on parties that refuse to comply with court orders or neglect their own discovery obligations. Possible sanctions may include, among other things, monetary penalties, an instruction of adverse inference, or the ultimate sanction of default judgment against the offending party. These sanctions are imposed to remedy the wrongs at-issue and to deter abusive discovery conduct. More ›

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Chancery Rules That The Standard Of Proof For Contempt Motions Is The Preponderance Of The Evidence, Not Clear And Convincing Evidence

inTEAM Associates, LLC v. Heartland Payment Systems, LLC, C.A. No. 11523-VCF (Del. Ch. Oct. 29, 2021)
Court of Chancery Rule 70(b) empowers the Court to hold a party in contempt for, among other things, failing to obey an injunctive order. The standard of proof required to obtain a contempt order has not been uniformly applied. This recent decision applies the preponderance of the evidence standard, in contrast to certain decisions over the past decade applying the clear and convincing evidence standard. More ›

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Chancery Shifts Fees, Finds That Defendant’s Litigation Tactics in Books and Records Case Crossed The Line Between Aggressive Litigation And Glaringly Egregious Conduct

Pettry, et al. v. Gilead Sciences, Inc., C.A. Nos. 2020-0132-KSJM; 2020-0138-KSJM; 2020-0155-KSJM; 2020-0173-KSJM (Del. Ch. July 22, 2021).
Delaware follows the American Rule: all litigants pay their own attorneys’ fees, no matter the outcome of the litigation. In rare cases where a litigant’s conduct is “glaringly egregious,” Delaware courts will make an exception and shift fees. This is known as the “bad faith” exception. More ›

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Chancery Shifts Attorneys’ Fees, Reasoning Perjury Is Bad Faith Per Se

Lyons Ins. Agency Inc. v. Wilson, C.A. No. 2017-0092-SG (Del. Ch. Apr. 29, 2021).
In this action, the Court of Chancery noted that it heard “perhaps the most cogent, and certainly the briefest, argument for fee shifting under the bad faith exception I have been privileged to hear: ‘perjury is bad faith.’” Plaintiff Lyons Insurance Agency Inc. (“Lyons”) sued its former employee Howard Wilson, an insurance broker, for breach of the non-compete in his employment contract. At a hearing for a preliminary injunction, Wilson testified that he needed to follow his clients to another firm because he could not entice them to stay at Lyons. Throughout the litigation, he maintained that he had not intended to rob Lyons of business. But, before a damages hearing, Wilson submitted an affidavit repudiating his earlier testimony. At the damages hearing, he testified that he conspired with the other firm to breach his employment agreement, recanting his earlier testimony. More ›

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Chancery Enters Sanctions in TransPerfect Litigation for Violating Exclusive Jurisdiction Provision in Court Order

In re: TransPerfect Global, Inc., C.A. No. 9700-CB (Del. Ch. Oct. 17, 2019).

This decision arose out of the dispute between once deadlocked co-owners of TransPerfect Global that played out in the Delaware courts over several years.  That heavily-litigated controversy resulted in the appointment of a Custodian by the Court of Chancery and a forced sale of the company as part of a Final Order, with one of the co-owners, Phil Shawe, prevailing as the buyer. More ›

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Court of Chancery Addresses Attorney Conduct and Sanctions

Lendus, LLC v. Goede, C.A. No. 2018-0233-SG (Del. Ch. Dec. 10, 2018)

The Court of Chancery respects zealous advocacy, but demands professionalism and degrees of civility, among counsel and the parties.  Every few years a non-Delaware attorney admitted pro hac vice goes too far in aggressively representing his or her client in a Delaware litigation.  This decision discusses boundaries that should not be crossed, especially in a deposition.  Name calling, sarcasm, aggressive behavior, and other forms of bullying are not permitted and may result in the loss of the right to practice before the Court.

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Court Of Chancery Sanctions Litigant For Fabricating Evidence And Violating Orders In LLC Dispute

Sara Ensing v. Hans Ensing, C.A. No. 12591-VCS (Mar. 6, 2017)

This case involves the unfortunate deterioration of a marriage, as well as the couple’s winery venture, carried on through various LLCs.  The decision illustrates the seriousness with which the Court of Chancery views the fabricating of evidence and the violations of its orders, including the status quo orders typically entered by the Court in control disputes. It also discusses interesting expert evidence on the subject of metadata used to prove the inauthenticity of certain electronic documents. In the end, the ill-behaving litigant was ordered to pay two-thirds of its adversary’s fees and expenses, as well as the expert witness fees and expenses.

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