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CHC Companies, Inc. v. Sanders

Court of Chancery of Delaware

May 13, 2013

CHC Companies, Inc., et al.
James Dennis Sanders

Submitted: May 10, 2013

David E. Ross, Esquire Seitz Ross Aronstam & Moritz LLP, James Dennis Sanders.

Dear Litigants:

This matter is currently before me on the request of CHC that I enter a final judgment as a sanction for James Dennis Sanders' (the "Defendant") contempt of Court, failure to comply with discovery, and failure to appear for a Rule to Show Cause. For the following reasons, I have granted that motion.

According to the Complaint in this case, Plaintiff CHC Companies, Inc. ("CHC") is a Delaware corporation providing correctional and probation services to prisons and courts nationwide. The Defendant was a co-founder and co-owner of Plaintiff Judicial Correction Services, Inc. ("JCS"), also a Delaware corporation, providing private probation services to courts, mostly in the deep south. On September 30, 2011, CHC purchased JCS. CHC paid the Defendant more than $500, 000 for his interest in JCS, and hired him as Vice President of Customer Relations, post acquisition. On December 31, 2011, that relationship terminated.

As part of the acquisition of JCS, CHC and the Defendant entered into a non-competition and non-solicitation agreement on September 30, 2011. That agreement was to be in force for a period of five years. It forbad the Defendant to

. . . engage in or own, manage, operate or control or participate in the ownership, management, operation or control of any business or entity that engages anywhere in the United States in any businesses in direct or indirect competition with [the Plaintiffs]. . .; [to] directly or indirectly solicit or attempt to solicit or take any actions calculated to persuade (or that could otherwise reasonably be expected to cause) any person who is or has been a customer, supplier, distributor, licensor or licensee, sales representative, sales agent, consultant or any other business relation of [JCS] prior to or after the closing to cease doing business with, or alter or limit its business relationship with, the [Plaintiffs];" [and to] . . .solicit to perform services (as an employee, consultant or otherwise) any persons who are or, within the 12 month period immediately preceding [Defendant]s' action, were employees of the [Plaintiffs], or take any actions intended to persuade any such person to terminate his or her association with the [Plaintiffs]. . . .

In other words, under the terms of the Defendant's sale of JCS, he was prohibited from competing with CHC or JCS, and from soliciting employees or customers.

The Complaint goes on to allege that the Defendant has in fact formed or entered competing businesses and has solicited both CHC/JCS employees and customers, in violation of the agreement. The Complaint seeks damages and injunctive relief. Contemporaneously with Complaint, the Plaintiffs filed a Motion to Expedite and for a Temporary Restraining Order, citing irreparable harm in the conduct of their business arising from the breaches of contract recited in the Complaint.

The Complaint was filed on February 13, 2013, and I scheduled a hearing on the Temporary Restraining Order request for February 22, 2013. The parties were able to work out a Status Quo Order which I entered on February 22, 2013. That Order provided that, pending resolution of the action, the Defendant and all persons acting in concert with him, whether in their individual capacities or through entities under their control, would forebear from competing with the Plaintiffs; forebear from hiring or soliciting the Plaintiffs' employees; and refrain from soliciting or attempting to persuade or otherwise interfere with the Plaintiffs' employees and customers. The Order identified by name certain customers, including several municipal court systems, that the Defendant was prohibited from contacting. The Status Quo Order also required the Defendant to preserve evidence relating to the alleged violations of the Defendant's agreement not to compete with the Plaintiffs. The Order specifically provided that the Defendant was required to respond to discovery within 21 days and to appear for deposition on an "expedited basis." The Order also directed the parties to enter a pre-trial schedule.

Two weeks later, on March 8, 2013, the Plaintiffs filed an Emergency Motion for An Order to Show Cause against the Defendant. According to that Motion, the Defendant was in flagrant violation of both his underlying contractual obligations and, pertinently, the Status Quo Order I entered on February 22, 2013. According to the Plaintiffs, the Defendant's violations of the Status Quo Order began on the day following entry of that Order, in soliciting Talladega Municipal Court, one of the courts specifically mentioned as a customer of the Plaintiffs in the Status Quo Order. The Motion alleged other breaches of the Status Quo Order as well. The Plaintiffs supported the Motion with affidavits and other evidence.

I scheduled a telephonic hearing on the Motion on March 12, 2013. At that hearing, the Defendant did not deny that he contacted employees and customers as the Plaintiffs had alleged; instead, he protested that his contact was innocent. In light of the expedited nature of the matter, and anticipating a quick resolution after trial, I continued consideration of the Rule to Show Cause and directed Mr. Sanders to comply with the February 22 Order and to cease his contacts with customers and employees of the Plaintiffs. I instructed him not to

contact them. Don't have a friendly lunch with them. Don't go to a ballgame with them. Don't write letters about their business. You've got to leave them alone. If I get another complaint, I'm going to have to bring you up here and get to the bottom of it, and if I find you have been violating the order, I'm going to have to impose sanctions on you. You understand that sir?

The Defendant responded in the affirmative. I then instructed Plaintiffs' counsel to "monitor the situation. If there is any—if you feel that there is still non- compliance, you don't need to renotice the Motion. You just need to notify me that you would like it considered based on whatever has happened, and I will take the appropriate action." I told the parties I would schedule the matter ...

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