ExamWorks, Inc. v. DeStefano

EFiled: Sep 26 2014 09:15AM EDT
Transaction ID 56092130
Case No. 10044-VCN
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
417 SOUTH STATE STREET
JOHN W. NOBLE DOVER, DELAWARE 19901
VICE CHANCELLOR TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179
September 26, 2014
Brian E. Farnan, Esquire Laurence V. Cronin, Esquire
Farnan LLP Smith, Katzenstein & Jenkins LLP
919 North Market Street, 12th Floor 800 Delaware Avenue, Suite 1000
Wilmington, DE 19801 Wilmington, DE 19801
Re: ExamWorks, Inc. v. DeStefano
C.A. No. 10044-VCN
Date Submitted: September 4, 2014
Dear Counsel:
Plaintiff ExamWorks, Inc. (“ExamWorks”) has moved to enforce a
settlement agreement and for a temporary restraining order to prevent competition
by Defendants Richard DeStefano (“DeStefano”) and his employer, SCS Support
Claims Services, Inc. (“SCS”). Defendants contend that SCS is not a proper party
to this action,1 that there has been no violation of the settlement agreement
1
The parties disagree about whether the Court has personal jurisdiction over SCS.
The Court does not decide that issue now but observes that any injunction entered
against DeStefano would have the same ultimate consequences for SCS.
ExamWorks, Inc. v. DeStefano
C.A. No. 10044-VCN
September 26, 2014
Page 2
executed in January 2014 (the “Settlement Agreement”),2 and that ExamWorks
cannot make the required showing for a temporary restraining order.
In deciding a motion for a temporary restraining order, the Court generally
considers “(i) the existence of a colorable claim, (ii) the irreparable harm that will
be suffered if relief is not granted, and (iii) a balancing of hardships favoring the
moving party.”3 The Court traditionally focuses on the latter two elements given
the early stage of the proceedings.4 On a motion to enforce a settlement
agreement, the moving party bears the burden of proving the existence and terms
of the agreement by a preponderance of the evidence.5 This Court has equitable
jurisdiction to award specific performance to enforce a settlement agreement. 6
2
The Settlement Agreement and a Final Order and Permanent Injunction resolved
an earlier dispute between ExamWorks and DeStefano. See ExamWorks, Inc. v.
Richard DeStefano, C.A. No. 9085-VCN (Del. Ch. Jan. 29, 2014) (ORDER);
Letter from Scott A. Holt, Esquire, Att’y for DeStefano (Jan. 24, 2014).
3
CBOT Hldgs., Inc. v. Chi. Bd. Options Exch., Inc., 2007 WL 2296356, at *3 (Del.
Ch. Aug. 3, 2007).
4
ACE Ltd. v. Capital Re Corp., 747 A.2d 95, 102 (Del. Ch. 1999).
5
United Health Alliance, LLC v. United Med., LLC, 2013 WL 6383026, at *7 (Del.
Ch. Nov. 27, 2013).
6
See, e.g., Loppert v. WindsorTech, Inc., 865 A.2d 1282, 1290 n.53 (Del. Ch.
2004) (“‘Delaware law favors the voluntary settlement of contested disputes.’ This
ExamWorks, Inc. v. DeStefano
C.A. No. 10044-VCN
September 26, 2014
Page 3
Here, the parties do not dispute the existence of the Settlement Agreement
(and the contracts allegedly incorporated therein), but disagree about its terms.
The Settlement Agreement provides, in part:
Subject to DeStefano’s compliance with the Final Order, ExamWorks
agrees to waive enforcement of the non-compete and customer non-
solicitation covenants in the Prior DeStefano Agreements, provided
that ExamWorks’ waiver of DeStefano’s broader and longer non-
compete obligations set forth in the Prior DeStefano Agreements
extends only to DeStefano’s employment with [Insight Service Group,
Inc. (“ISG”)] and not with any other person or entity.7
The agreement later states:
ExamWorks and DeStefano, for and in consideration of the covenants
described herein, and the other consideration set forth herein, and
intending to be legally bound, do hereby REMISE, RELEASE, AND
FOREVER DISCHARGE each other from all legally waivable
causes of action . . . which have accrued through the effective date and
which relate to the same . . . claims that form the underlying basis for
the Action.8
The order entered by this Court on January 29, 2014 (the “Final Order”)
prohibited DeStefano from (i) “engag[ing] in the business of selling, arranging
public policy counsels in favor of granting specific performance.”) (citation
omitted), aff’d, 867 A.2d 903 (Del. 2005) (TABLE).
7
Cronin Aff. Ex. A, at 2 (emphasis in original).
8
Cronin Aff. Ex. A, at 3 (emphasis in original). The “Action” refers to the
complaint ExamWorks filed “on or about November 14, 2013 . . . making certain
allegations against DeStefano.” Id. at 1.
ExamWorks, Inc. v. DeStefano
C.A. No. 10044-VCN
September 26, 2014
Page 4
and/or facilitating independent medical examinations, peer reviews or bill reviews”
until May 27, 2014, and (ii) “solicit[ing], offer[ing] employment to, hir[ing] or
otherwise retain[ing] the services of any employee . . . or physician, medical
professional, or medical group” in competition with ExamWorks until October 24,
2015.9 The agreements referenced by the Settlement Agreement (the “Prior
DeStefano Agreements”) include a number of non-competition, non-solicitation,
and confidentiality provisions.10
For example, the third stock option award agreement DeStefano signed
states, in relevant part, that he shall not (i) “at any time during or after [his]
employment with any ExamWorks Company, divulge such Confidential
Information or make use of it for [his] own purposes or the purposes of any person
or entity other than the ExamWorks Companies”;11 (ii) “market, offer, sell or
9
ExamWorks, C.A. No. 9085-VCN, at 1.
10
The Settlement Agreement defines the “Prior DeStefano Agreements” as the
Non-Solicitation and Confidential Information and Protection Agreement dated
October 4, 2010; the four Stock Option Award Agreements dated January 6, 2011,
May 12, 2011, September 12, 2011, and February 1, 2012; and the Restricted
Stock Award Agreement dated August 30, 2013. Cronin Aff. Ex. A, at 1.
11
Compl. ¶ 37; Ex. D, at 40. The agreement defines “ExamWorks Companies”
(and “ExamWorks Company” in the singular) as ExamWorks Group, Inc. (“the
Company”), Compl. Ex. D, at 34, and “its direct and indirect subsidiaries and
ExamWorks, Inc. v. DeStefano
C.A. No. 10044-VCN
September 26, 2014
Page 5
otherwise furnish any products or services similar to, or otherwise competitive
with, those offered by the ExamWorks Companies to any customer of an
ExamWorks Company” for two years after termination;12 (iii) “solicit, offer
employment to, hire or otherwise retain the services of any employee . . . or any
physician or other medical professional or medical group with whom or which any
ExamWorks Company contracts to provide independent medical examination, peer
review, utilization review, bill review, set-aside, or related services” for two years
after termination;13 or (iv) “compete with the ExamWorks Companies anywhere
where the Company conducts such business” for two years after termination.14
The fourth stock option award agreement DeStefano signed contains the same
relevant language as the third.15
related companies.” Compl. Ex. D, at 40. “Confidential Information” means
“confidential information and proprietary data which are not known, and not
readily accessible to the competitors of the ExamWorks Companies.” Compl.
Ex. D, at 40.
12
Compl. ¶ 38; Ex. D, at 41.
13
Compl. ¶ 39; Ex. D, at 41.
14
Compl. ¶ 40; Ex. D, at 41.
15
Compl. ¶¶ 45-48.
ExamWorks, Inc. v. DeStefano
C.A. No. 10044-VCN
September 26, 2014
Page 6
ExamWorks’ strongest theory is that “waiver of DeStefano’s broader and
longer non-compete obligations set forth in the Prior DeStefano Agreements
extends only to DeStefano’s employment with ISG and not with any other person
or entity.”16 Defendants, on the other hand, argue that DeStefano has not violated
any valid restriction and that the Settlement Agreement merely was a waiver of
prior restrictions: “[t]he Settlement Agreement does not impose any
restrictions . . . , nor does it ‘incorporate’ any of the terms of the Prior
Agreements.”17 There is enough uncertainty in the contractual language that the
Court cannot summarily dismiss Defendants’ arguments, although the arguments
are not particularly persuasive. At this point, ExamWorks has raised a colorable
claim that DeStefano breached the Settlement Agreement and its associated non-
competition, non-solicitation, and confidentiality agreements.
Irreparable harm would seem to be a natural conclusion if one’s former
regional Vice President of Sales and Marketing became the Chief Executive
Officer of a competitor. The Court is persuaded that ExamWorks has suffered
16
If so, the non-competition and non-solicitation provisions in the agreements
would continue to apply until October 24, 2015.
17
Defs.’ Mem. in Opp’n to Pl.’s Mot. to Enforce Settlement Agreement and for a
TRO 2-3, 23.
ExamWorks, Inc. v. DeStefano
C.A. No. 10044-VCN
September 26, 2014
Page 7
some harm for which monetary relief is not sufficient. However, ExamWorks is a
large company, and it has not shown specific irreparable harm or the extent of
harm that it has suffered or will suffer. Furthermore, some measure of irreparable
harm does not necessarily justify the extraordinary relief of a temporary restraining
order.
A balancing of the harms, however, weighs in DeStefano’s favor. A
temporary restraining order would put DeStefano out of work and have
repercussions on his family’s well-being. ExamWorks claims that it will lose
“customers, employees, income, and goodwill”18 unless the various non-
competition and confidentiality provisions are enforced until October 2015. On
balance, the marginal injury to DeStefano from an injunction issued on the current,
undeveloped record outweighs the harm a large business such as ExamWorks will
suffer from the work of an individual terminated nearly one year ago—albeit a
former executive currently working as the Chief Executive Officer of an alleged
competitor. Additionally, the harm to ExamWorks can be minimized through an
expedited hearing on the merits.
18
Pl.’s Mem. in Supp. of Mot. to Enforce Settlement Agreement and for TRO 24.
ExamWorks, Inc. v. DeStefano
C.A. No. 10044-VCN
September 26, 2014
Page 8
The request for a temporary restraining order is denied, not so much because
of the merits of ExamWorks’ claims, but because a balancing of the equities in a
context informed by a less-than-precise contractual arrangement and some
uncertainty about the scope of irreparable harm counsels against the extraordinary
relief.19 Neither is the Court persuaded at this time to grant specific performance
of the Settlement Agreement on a limited record. The Court, however, concludes
that prompt resolution of the dispute on the merits is warranted. Trial will be held
on November 24-25, 2014, commencing each day at 9:30 a.m., in Dover.
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap
cc: Register in Chancery-K
19
With this conclusion, it is not necessary to address DeStefano’s argument that
the scope of his restrictive covenants is excessive.