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Chancery Imposes Substantial Penalties for Non-Compliance with Prior Order

By Francis G.X. Pileggi

Aveta, Inc. v. Bengoa, No. 3598-VCL (Del. Ch., Dec. 24, 2009), read opinion here. This Court of Chancery opinion issued on Christmas Eve was no present to the defendant. In essence, the Court imposed severe penalties on a party for failing to comply with a prior Order of the Court to commence arbitration proceedings pursuant to the parties' agreement. The Court's prior decision was highlighted on this blog here. In reply to a motion to enforce file by the plaintiff, the Court,  sua  sponte,  issued a Rule to Show Cause why the defendant should not be held in contempt due to his violation of a prior court order.  

The facts of this case are somewhat sui generis, thus I will only highlight the legal issues raised instead of dwelling on the factual background that is not likely to be repeated often.

•  The Court discussed the standard applicable for civil contempt proceedings as well as its reasoning for applying that standard in this case. Slip op. at 23-24.
•  Also relied on was the Court's inherent power to enforce its rulings. Id. at 28.
•  Defenses of novation and res judicata were soundly rejected. Id. at 32-33.
•  The contract interpretation principle of using subsequent conduct of the parties to determine "intent to be bound by a contract" was discusssed. Id. at 35
• The stiff penalty imposed as a result of the Court's conclusion that the defendant wilfully violated the Court's prior Order was a fine of $20,000 for each day that the arbitration proceedings were not commenced (starting 30 days from the day of this decision), as well as attorneys' fees.

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on December 28, 2009 (boomark / email).