Delaware Business Litigation Report

Imposing “A Remedy Of First Impression,” Chancery Divests Party Of Stock Ownership As A Post-Judgment Contempt Sanction Under Rule 70.

In re Stream TV Networks, Inc. Omnibus Agreement Litig., C.A. No. 2020-0776-JTL (Del. Ch. Oct. 3, 2022)
Court of Chancery Rule 70 speaks to the Court’s discretion in fashioning sanctions for failure to comply with a Court order. This expressly includes the authority to divest a party of personal property over which the Court has jurisdiction. In what the Court of Chancery termed a “remedy of first impression,” the Court in this case divested a party of stock in a Delaware corporation as a sanction for failure to comply with a partial final judgment requiring it to transfer legal title of assets, including that stock, to the opposing party.

The partial final judgment required the defendant to transfer stock in a Delaware corporation to the plaintiff. That stock, including the plaintiff’s other assets, were subject to claims of the plaintiff’s secured creditors. One of the secured creditors (Hawk) had intervened in the case. In what the Court of Chancery termed a “choreographed sequence of events,” the defendant re-titled the stock in the plaintiff’s name, but then helped Hawk immediately lay claim to the stock as the plaintiff’s secured creditor. This benefitted the defendant, whose rights as a secured creditor were senior to Hawk’s. In response, the plaintiff filed a motion for emergency post-judgment relief. The Court found defendant’s and Hawk’s conduct was in contempt of its partial final judgment order. Accordingly, and as a sanction “of first impression,” the Court divested Hawk of the stock, ordering it returned to the defendant. 

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