Steven E. Schwartz v. Cognizant Technology Solutions Corporation ( 2023 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
LORI W. WILL LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
Date Submitted: October 20, 2022
Date Decided: January 19, 2023
David E. Ross, Esquire Bartholomew J. Dalton, Esquire
Anthony M. Calvano, Esquire Michael C. Dalton, Esquire
Ross Aronstam & Moritz LLP Dalton & Associates, P.A.
1313 N. Market Street, Suite 1001 1106 W. 10th Street
Wilmington, Delaware 19801 Wilmington, Delaware 19806
Adam Balick, Esquire
Melony Anderson, Esquire
Michael C. Smith, Esquire
Balick & Balick, LLC
711 King Street
Wilmington, Delaware 19801
RE: Steven E. Schwartz v. Cognizant Technology Solutions Corporation,
C.A. No. 2021-0634-LWW
Dear Counsel:
I write regarding the defendant’s Motion for an Accounting and Set Off of
Advanced Fees Incurred in Plaintiff’s Injunction Action (the “Motion”).
Cognizant Technology Solutions Corporation seeks an order compelling plaintiff
Steven E. Schwartz to provide a certified accounting for legal fees and expenses
incurred in this case and permitting Cognizant to offset those costs against future
advances made to Schwartz.
C.A. No. 2021-0634-LWW
January 19, 2023
Page 2 of 8
The Motion is procedurally peculiar. It is brought in neither an advancement
nor an indemnification proceeding, but rather amid a plenary action. It concerns
both previously advanced fees and those that could be sought in the future. For
reasons of judicial efficiency and practicality, the Motion is denied.
I. BACKGROUND
Schwartz is the former Executive Vice President, Chief Legal Officer, and
Corporate Affairs Officer of Cognizant.1 He is a defendant in various lawsuits
arising from alleged violations of the Foreign Corrupt Practices Act.2 In December
2019, Schwartz brought an advancement action in this court that invoked an
Indemnification Agreement with Cognizant.3 Chancellor Bouchard entered an
order granting partial summary judgment in Schwartz’s favor in April 2020 (the
“Implementing Order”).4 Cognizant has since honored its obligation to advance
certain fees and expenses to Schwartz.
1
Verified Compl. for Inj. Relief (“Compl.”) ¶ 4 (Dkt. 1).
2
See Schwartz v. Cognizant Tech. Sols. Corp., 2022 WL 880249, at *2 (Del. Ch. Mar. 25,
2022) (describing lawsuits and investigations); see, e.g., United States v. Coburn, 439 F.
Supp. 3d 361 (D.N.J. 2020); S.E.C. v. Coburn, 2019 WL 6013139 (D.N.J. Nov. 14,
2019); In re Cognizant Tech. Sols. Corp. Sec. Litig., 2020 WL 3026564 (D.N.J. June 5,
2020); In re Cognizant Tech. Sols. Corp. Deriv. Litig., 2022 WL 4483595 (D.N.J. Sept.
27, 2022) (dismissing derivative claims; appeal filed).
3
Schwartz v. Cognizant Tech. Sols. Corp., C.A. No. 2019-1004-AGB (Del. Ch.); see
Compl. Ex. G § 10 (Dkt. 2).
4
Schwartz, C.A. No. 2019-1004-AGB (Del. Ch. Apr. 17, 2020) (ORDER).
C.A. No. 2021-0634-LWW
January 19, 2023
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In June 2021, Cognizant sued Schwartz’s federal counsel in the United
States District Court for the Southern District of New York for purported
fraudulent billing practices (the “Federal Action”).5 In response, Schwartz filed
the present anti-suit injunction action in this court (the “Injunction Action”) on
July 21, 2021. Two motions in the Injunction Action followed.
First, Schwartz filed a motion for an anti-suit injunction and civil contempt.6
Specifically, Schwartz asked the court to enjoin Cognizant from prosecuting the
Federal Action and to hold Cognizant in civil contempt for violating the
Implementing Order. I denied that motion in a March 25, 2022 memorandum
opinion, explaining that this court cannot bar a party from proceeding in an in
personam lawsuit in a federal court with jurisdiction.7 I also held that Schwartz
failed to identify any violation of the Implementing Order by Cognizant.8
Second, Cognizant filed a Motion for Clarification that asked the court to
revise the Implementing Order by requiring Schwartz to certify that his
5
See Cognizant Tech. Sols. Corp. v. Bohrer PLLC, 2022 WL 1720319 (S.D.N.Y. May
27, 2022) (granting the defendants’ motion to dismiss due to a Delaware forum selection
clause).
6
Dkt. 29.
7
Schwartz v. Cognizant Tech. Sols. Corp., 2022 WL 880249, at *3 (Del. Ch. Mar. 25,
2022).
8
Id. at *6 (“Cognizant did not violate the Dismissal Order by filing the SDNY Action.
Nor did it ‘fail to obey’ the Implementing Order.”).
C.A. No. 2021-0634-LWW
January 19, 2023
Page 4 of 8
advancement requests did not concern the Federal Action.9 I denied that motion in
a March 14, 2022 letter opinion.10 I explained that the Implementing Order
unambiguously “makes clear that only certified expenses for [a federal criminal
action and an action brought by the Securities and Exchange Commission] are
presumed to be reasonable for purposes of advancement.”11
For a time, Cognizant advanced the fees and expenses Schwartz incurred in
the Injunction Action without objection. Cognizant “believed it was not required
to advance those expenses, [but] did so to avoid a premature dispute with Schwartz
and additional (albeit unfounded) claims that it should be held in contempt for
violating the Implementing Order.” 12 It no longer wishes to do so.
On May 25, Cognizant sent a letter to Schwartz’s Delaware counsel
demanding that Schwartz “repay the expenses Cognizant advanced to him in
connection with” the Injunction Action.13 It asserted that Schwartz was not
entitled to advancement or indemnification for the Injunction Action under the
9
Dkt. 40.
10
Schwartz v. Cognizant Tech. Sols. Corp., C.A. No. 2021-0634-LWW (Del. Ch. Mar.
14, 2022) (Dkt. 46) (“Letter Decision”).
11
Id. at 4.
12
See Def.’s Mot. for an Accounting and Set Off of Advanced Fees Incurred in Pl.’s Inj.
Action (Dkt. 49) (“Def.’s Acct. Mot.”) ¶ 17.
13
Id. Ex. C at 1.
C.A. No. 2021-0634-LWW
January 19, 2023
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terms of the parties’ Indemnification Agreement.14 Schwartz’s counsel rejected
Cognizant’s demand.15
Cognizant subsequently filed the Motion. It seeks a determination that
Schwartz is not entitled to advancement or indemnification for fees incurred in the
Injunction Action under the Indemnification Agreement and Cognizant’s bylaws.
And it requests an order requiring Schwartz to provide an accounting of such fees
and permitting Cognizant to offset the total against future requests for
advancement. Schwartz opposes the Motion as premature since the underlying
actions have not concluded.16
II. ANALYSIS
The fees and expenses at issue in the Motion can be assessed in two
categories: (1) those already advanced by Cognizant, and (2) those that Schwartz
might demand advancement for in the future.
Regarding the former, it would be inappropriate to order Schwartz to
undertake an accounting now. In Kaung v. Cole National Corp., the Delaware
Supreme Court explained that a party’s right to recoup previously advanced funds
should not be addressed until an ultimate determination of indemnification is
14
See id. Ex. C at 2-3.
15
See id. Ex. D at 2.
16
Pl.’s Opp’n to Def.’s Acct. Mot. (Dkt. 53) ¶ 22.
C.A. No. 2021-0634-LWW
January 19, 2023
Page 6 of 8
made.17 Permitting Cognizant to offset expenses after an accounting is not
meaningfully different from the repayment contemplated in Kaung. It would still
require the court to undertake a granular review of fees before a non-appealable
final judgment has been rendered.18
Regarding the latter, it would also be improvident to opine on whether
Schwartz is entitled to future advancement for the Injunction Action. This is, of
course, not an advancement action. Yet Cognizant essentially asks me to treat it as
such.
17
884 A.2d 500, 509 (Del. 2005) (holding that the Court of Chancery’s determination of
liability for sums previously advanced voluntarily was “premature, just as a direct
recoupment claim would have been by [the defendant] for fees it advanced”); see also
Perryman v. Stimwave Techs., Inc., 2021 WL 1423468, at *2 (Del. Ch. Apr. 15, 2021).
18
See Hampshire Grp. Ltd. v. Kuttner, 2010 WL 2739995, at *53 (Del. Ch. July 12,
2010) (“Rather than violate settled principles that dictate that indemnification claims be
addressed when the underlying matter for which indemnification is sought is final, I
prefer to follow the proper order and address indemnification in a later proceeding.”);
Paolino v. Mace Sec. Int’l, Inc., 985 A.2d 392, 397 (Del. Ch. 2009) (“It would be
inefficient and wasteful for the parties and [the court] to deal with indemnification while
the underlying landscape continues to evolve.”); Fasciana v. Elec. Data Sys. Corp., 829
A.2d 160, 177 (Del. Ch. 2003) (“Unless some gross problem arises, a balance of fairness
and efficiency. . . counsel[s] deferring fights about details until a final indemnification
proceeding.”); Simon v. Navellier Series Fund, 2000 WL 1597890, at *9 (Del. Ch. Oct.
19, 2000) (“As a matter of litigative efficiency, it makes little sense for this court to
decide claims for indemnification—as opposed to claims for advancement of litigation
expenses—in advance of a non-appealable final judgment.”).
C.A. No. 2021-0634-LWW
January 19, 2023
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I appreciate that Cognizant is wary of violating the Implementing Order, but
I decline to advise on whether Cognizant might run afoul of it.19 If Cognizant
believes in good faith that the Injunction Action is not advanceable, it can refuse
Schwartz’s future requests. Should Schwartz insist that he is entitled to
advancement, he can pursue a claim under the proper procedural framework.20
Cognizant has not presented any special hardship or unique facts that might
warrant a break from standard procedure in adjudicating advancement and
indemnification claims. It chose to advance-and-wait rather than to withhold fees
and potentially face an advancement action.21 It understandably now wishes to
change course. But I see little benefit to the parties or the court from resolving a
dispute about entitlement to advancement and recoupment during this plenary
proceeding.22
The Motion is therefore denied.
19
I note that I have previously opined on the meaning of the Implementing Order. See
Letter Decision at 3-4; Schwartz, 2022 WL 880249, at *6.
20
See 8 Del. C. § 145.
21
See Def.’s Acct. Mot. ¶ 17.
22
See Reinhard & Kreinberg v. Dow Chem. Co., 2008 WL 868108, at *5 (Del. Ch. Mar.
28, 2008) (“[T]his Court does not relish and will not perform the task of playground
monitor, refereeing needless and inefficient skirmishes in the sandbox.”).
C.A. No. 2021-0634-LWW
January 19, 2023
Page 8 of 8
Finally, it is unclear to me what is left for the court to resolve in the
Injunction Action. Schwartz’s request for an anti-suit injunction was denied as a
matter of law. The Federal Action was dismissed and subsequently refiled in
Delaware Superior Court.23 Schwartz insists that his request for a declaratory
judgment that Cognizant violated the Implementing Order remains to be resolved.
But this court held otherwise in denying Schwartz’s request for a finding of
contempt.24 Within 30 days of this decision, Schwartz is directed to file a letter
describing whether he intends to press his claims and setting forth a proposed
course of action to reach a final resolution.
Sincerely yours,
/s/ Lori W. Will
Lori W. Will
Vice Chancellor
23
See Def.’s Acct. Mot. ¶ 13 n.1.
24
Schwartz, 2022 WL 880249, at *6. Other than the Motion, this case has been dormant
since my March 25 memorandum opinion was issued.