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Court Of Chancery Grants Plaintiff's Rule To Show Cause And Finds Defendant Was Contemnor Despite Wrongful TRO

Posted In Injunctions
Richard Y. Johnson & Son, Inc. v. Just-In Construction, Inc., et al., C.A. No. 1735-S, 2006 WL 75308 (Del. Ch. Jan. 06, 2006). This case involved the issue of a TRO to prevent defendant from alienating goods and effects and imposition of a constructive trust pursuant to 6 Del. C. §3501 under a claim of breach of fiduciary duties, to capture receipts to defray vendors and contractors retained to complete DMV related work. Plaintiff petitioned for a TRO to prevent defendant from selling goods and effects, after plaintiff, a DMV contractor for the State of Delaware, hired defendant to carry out construction and received complaints of non-payment for work rendered by lower-level contractors and vendors of defendant. Plaintiff approached the court claiming breach of fiduciary duties and requested imposition of a constructive trust under 6 Del. C. §3501. The court issued a TRO constructively freezing the sale proceeds in trust for the benefit of plaintiff and defendant's subcontractors and suppliers. Although defendant received the notice of the TRO, it appropriated and applied the trust funds accrued from the sale proceeds towards its tax liens. Plaintiff accordingly moved for a rule to show cause why defendants could not be held in contempt. The court concluded that although its TRO was issued in error and that the constructive trust imposed was really a final remedy wrongfully issued at the TRO stage rather than on merits, the defendant was nevertheless in contempt for violating that TRO. Accordingly, the court imposed costs and reasonable attorney fees up to a maximum of $1,000 on the defendants, observing that this was an unusually mild form of relief for the plaintiff and was justified because of the peculiar circumstances of the case. Authored by: Raj Srivatsan 302-888 6831 rsrivatsan@morrisjames.com Share

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