Steven E. Schwartz v. Cognizant Technology Solutions Corporation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
STEVEN E. SCHWARTZ, )
)
Plaintiff, )
)
v. ) C.A. No. 2021-0634-LWW
)
COGNIZANT TECHNOLOGY )
SOLUTIONS CORPORATION, a )
Delaware Corporation )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: January 12, 2022
Date Decided: March 25, 2022
Bartholomew J. Dalton and Michael C. Dalton, DALTON & ASSOCIATES, P.A.,
Wilmington, Delaware; Adam Balick and Michael Collins Smith, BALICK &
BALICK, LLC, Wilmington, Delaware; Counsel for Plaintiff Steven E. Schwartz
David E. Ross and Anthony Calvano, ROSS ARONSTAM & MORITZ LLP,
Wilmington, Delaware; J. Christian Word, LATHAM & WATKINS LLP,
Washington, DC; Luke Nikas, QUINN EMANUEL URQUHART & SULLIVAN,
LLP, New York, New York; William A. Burck and Ben A. O’Neil, QUINN
EMANUEL URQUHART & SULLIVAN, LLP; Counsel for Defendant Cognizant
Technology Corporation
WILL, Vice Chancellor
The plaintiff, a former officer of Cognizant Technology Solutions
Corporation, asks this court to enjoin Cognizant from pressing fraud claims against
a law firm representing the plaintiff in other matters. The plaintiff previously sought
advancement in this court after Cognizant had accused the firm of fraudulent billing
practices and stopped advancing the firm’s fees. In April 2020, the court entered an
order largely in the plaintiff’s favor. Cognizant has since honored its advancement
obligations.
In July 2021, Cognizant again accused the plaintiff’s counsel of fraudulent
billing practices and sued that counsel in New York federal court, invoking diversity
jurisdiction. The plaintiff subsequently filed the present action, seeking an anti-suit
injunction and a finding of civil contempt. Meanwhile, his counsel has moved to
dismiss the New York federal action on grounds including forum non conveniens
because the plaintiff’s indemnification agreement contained a Delaware forum
selection provision.
For the reasons explained in this opinion, I deny the plaintiff’s motion for an
anti-suit injunction. It is well settled that a state court lacks the power to enjoin a
party from proceeding with in personam litigation in a federal court that has
jurisdiction. The plaintiff asserts that this case is different because of the potential
application of a Delaware forum selection provision. But the New York federal
1
court—not this court—must determine whether it is a proper forum for Cognizant’s
fraud claims.
I also decline to hold Cognizant in contempt. The plaintiff has not identified
any violation of this court’s advancement orders that could support such relief.
I. BACKGROUND
The plaintiff, Steven E. Schwartz, is the former Executive Vice President,
Chief Legal and Corporate Affairs Officer of defendant Cognizant Technology
Solutions Corporation (the “Company”).1 Cognizant is an American multinational
information technology services and consulting company headquartered in Teaneck,
New Jersey and incorporated in Delaware.2
Schwartz and Cognizant signed an Indemnification Agreement on June 4,
2013 that requires Cognizant to advance legal expenses incurred by Schwartz by
reason of the fact that he was a Cognizant officer.3 The Indemnification Agreement
contains a Delaware forum selection provision:
This Agreement and the legal relations among the parties
shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware,
without regard to its conflict of laws rules. Except with
respect to any arbitration commended by Indemnitee
1
Verified Compl. for Inj. Relief (“Compl.”) ¶ 4 (Dkt. 1).
2
Cognizant, About Cognizant, https://www.cognizant.com/us/en/about-cognizant (last
visited March 24, 2022).
3
Pl.’s Opening Br. Ex. C (“Advancement Compl.”) ¶ 3 (Dkt. 29); Compl. Ex. G
(“Indemnification Agreement”) § 10 (Dkt. 2).
2
pursuant to Section 14(a) of this Agreement, the Company
and Indemnitee hereby irrevocably and unconditionally
(i) agree that any action or proceeding arising out of or in
connection with this Agreement shall be brought only in
the Delaware Court, and not in any other state or federal
court in the United States of America or any court in any
other country [and] (ii) consent to submit to the exclusive
jurisdiction of the Delaware court for purposes of any
action or proceeding arising out of or in connection with
this Agreement . . . .4
A. Schwartz Is Investigated and Cognizant Begins Advancement
Payments.
In April 2016, Cognizant began investigating potential internal violations of
the Federal Corrupt Practices Act (the “FCPA”) involving alleged bribery payments
to government officials in India.5 Schwartz initially led the investigation.6 He was
removed from that role in August 2016 when Cognizant learned that he may have
been involved in unlawful conduct.7
In September 2016, Cognizant reported certain findings from its internal
investigation to the Department of Justice and the Securities and Exchange
Commission, and each began its own investigation.8 Schwartz retained counsel and
4
Indemnification Agreement § 23.
5
Advancement Compl. ¶ 21.
6
Id. ¶ 22.
7
Id. ¶ 23.
8
Id. ¶ 25.
3
resigned soon after.9 The Company acknowledged its obligation to advance fees to
Schwartz’s counsel in connection with the investigations in late October 2016.10
B. Cognizant Stops Advancement Payments and Schwartz Sues.
In the summer of 2018, Schwartz hired Jeremy Bohrer and Bohrer PLLC
(together, “Bohrer”) and Paul, Weiss, Rifkind, Wharton & Garrison LLP to represent
him in the DOJ and SEC investigations.11 Cognizant initially expressed reluctance
to advance fees to Bohrer but agreed to advance the fees after Schwartz’s counsel
certified by affidavit that the expenses were reasonable.12
On February 14, 2019, the Department of Justice indicted Schwartz in the
United States District Court for the District of New Jersey for alleged violations of
the FCPA.13 The Securities and Exchange Commission filed a civil enforcement
action against Schwartz the next day.14 Schwartz was also named as a defendant in
a securities fraud class action and two stockholder derivative actions.15
9
Id. ¶¶ 24, 29.
10
Id. ¶ 28.
11
Id. ¶¶ 1, 33-34.
12
Id. ¶¶ 38-42; see Indemnification Agreement §§ 2(g), 10.
13
Advancement Compl. ¶ 43; see United States v. Coburn, No. 19-cr-120 (D.N.J.).
14
See S.E.C. v. Coburn, Civ. No. 19-cv-5820 (D.N.J.).
15
See Compl. ¶ 14; In re Cognizant Tech. Sols. Corp. Sec. Litig., No-16-cv-6509 (D.N.J.);
In re Cognizant Tech. Sols. Corp. Deriv. Litig., No. 17-cv-1248 (D.N.J.).
4
In November 2019, the Company informed Schwartz that it would discontinue
advancing fees to Bohrer based on its suspicions that Bohrer’s fees were
unreasonable and, in some cases, fraudulent.16 Schwartz responded by filing an
advancement action in this court on December 16, 2019.17
C. Cognizant Is Ordered to Continue Advancement Payments.
Schwartz moved for summary judgment, which Chancellor Bouchard granted
in part on April 7, 2020. The court found that the Indemnification Agreement
required Cognizant to continue advancing fees for Bohrer’s services because “the
conclusive presumption [of reasonableness] in the indemnification agreement
applies to the invoices of the Bohrer firm at issue [t]here.”18 An order implementing
the court’s summary judgment ruling was entered on April 17, 2020 (the
“Implementing Order”).19 The parties subsequently reached an agreement to settle
the remaining issues in the case. On September 22, 2020, the court entered an order
dismissing the action (the “Dismissal Order”) and retaining jurisdiction to enforce
the Implementing Order.20
16
See Advancement Compl. ¶¶ 44-46.
17
C.A. 2019-1004-CB, Dkt. 1.
18
C.A. 2019-1004-CB, Dkt. 54 at 23-24. Chancellor Bouchard did not require Cognizant
to advance fees to Bohrer with the respect to the use of its contract attorneys. Id. at 25-29.
19
C.A. 2019-1004-CB, Dkt. 53.
20
C.A. 2019-1004-CB, Dkt. 82.
5
D. The Federal Action and This Litigation
On June 16, 2021, Cognizant filed a lawsuit in the United States District Court
for the Southern District of New York against Bohrer (the “SDNY Action”).21
Cognizant alleged that Bohrer had engaged in fraud and civil conspiracy and was
unjustly enriched with regard to the firm’s billing practices.22 Bohrer moved to
dismiss or stay the SDNY Action on grounds including forum non conveniens given
the forum selection clause in the Indemnification Agreement. 23 That motion is
currently pending.24
On July 21, 2021, Schwartz filed an action in this court seeking an anti-suit
injunction and an order holding Cognizant in civil contempt for violating the court’s
Implementing and Dismissal Orders.25 Schwartz moved to expedite the proceedings,
which I denied on August 23, 2021 for failure to demonstrate irreparable harm.26 On
October 18, 2021, Schwartz filed a Motion for Anti-Suit Injunction and Civil
Contempt.27 After briefing, oral argument was held on January 12, 2022.28
21
Cognizant Tech. Sols. Corp. v. Bohrer PLLC, Civ. No. 1:21-cv-05340 (S.D.N.Y).
22
See Compl. 2; Pl.’s Opening Br. Ex. I.
23
Pl.’s Opening Br. Ex. AA at 8-12.
24
See Pl.’s Opening Br. Exs. AA, BB, CC.
25
Dkt. 1.
26
See Dkt. 24.
27
Dkt. 29.
28
Dkt. 44.
6
II. LEGAL ANALYSIS
Schwartz asks this court to enjoin Cognizant from prosecuting its claims in
the SDNY Action and to hold the Company in civil contempt for filing that action.
I first evaluate the plaintiff’s request for an anti-suit injunction before considering
his contempt arguments.
A. The Anti-Suit Injunction Motion
“Black letter principles of law recognize that an anti-suit injunction is
appropriate (1) to address a threat to the court’s jurisdiction; (2) to prevent evasion
of important public policy; (3) to prevent a multiplicity of suits; or (4) to protect a
party from vexatious or harassing litigation.”29 Schwartz’s arguments primarily fall
into the first and second categories. He argues that the SDNY Action violates the
Delaware forum provision in the Indemnification Agreement and this court’s
jurisdiction.
I need not reach those arguments. Simply put, this court cannot grant the anti-
suit injunction Schwartz seeks. As the United States Supreme Court explained in
Donovan v. City of Dallas, it is a “well-established judicially declared rule that state
29
In re TransPerfect Glob., Inc., 2019 WL 5260362, at *14 (Del. Ch. Oct. 17, 2019)
(quoting In re Liquidation of Freestone Ins. Co., 143 A.3d 1234, 1249 (Del. Ch. 2016))
(internal quotations omitted).
7
courts are completely without power to restrain federal-court proceedings in
personam actions” where the federal court has jurisdiction.30
In Donovan, the plaintiffs brought a class action in Texas state court that
sought to enjoin the City of Dallas from building an airport runway and issuing
municipal bonds for that purpose.31 After losing in state court and exhausting their
appeals, the plaintiffs filed an action seeking similar relief in the United States
District Court for the Northern District of Texas.32 The City of Dallas filed a motion
to dismiss in federal court but also successfully applied to the Texas state court for
a writ of prohibition barring the federal plaintiffs from prosecuting their action.33
The United States Supreme Court granted certiorari and subsequently reversed the
Texas Supreme Court, finding that the state court was “without power” to enjoin the
plaintiffs from invoking their right to prosecute the federal court action.34
30
Donovan v. City of Dallas, 377 U.S. 408, 412-13 (1964); see Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 21 n.24 (1983) (noting that the state court’s
injunction could not prevent a litigant from filing or prosecuting a lawsuit in the federal
court); see also Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure
§ 1838 (3d ed.) (“[T]he [United States] Supreme Court has held that a state court is without
authority to enjoin the prosecution of a concurrent federal action.”).
31
Donovan, 377 U.S. at 408-09; see also Gen. Atomic Co. v. Felter, 434 U.S. 12, 12 (1977)
(“It is therefore clear from Donovan that the rights conferred by Congress to bring in
personam actions in federal courts are not subject to abridgment by state-court injunctions,
regardless of whether the federal litigation is pending or prospective.”).
32
Donovan, 377 U.S. at 409.
33
Id. at 409-10.
34
Id. at 413-14 (explaining that the Texas state court lacked that power regardless of
whether “the prohibition . . . was addressed to the parties rather than to the federal court
itself”); see Gen. Atomic, 434 U.S. at 17 (“Donovan presented as compelling a case as there
8
That rule was reiterated by the United States Supreme Court in General
Atomic Co. v. Felter, where the Court held that a New Mexico state court’s
injunction restraining a party from prosecuting actions in federal court was in “direct
conflict” with the Supremacy Clause of the United States Constitution.35 The Court
observed that it was “clear from Donovan [that] the rights conferred by Congress to
bring in personam actions in federal court are not subject to abridgement by state-
court injunctions.”36
This court has consistently followed the doctrine set forth in Donovan on the
few occasions it has addressed it. In Malonado v. Flynn, the Court of Chancery held
that a request to order a party to withdraw two motions to dismiss in different federal
courts was “without legal foundation, [was] therefore improper, and never should
have been filed in this Court.”37 The court explained that “[t]he law has been clearly
settled since 1964 when the Supreme Court in Donovan . . . held that a State Court
cannot enjoin litigants from proceeding in a pending federal in personam action.”38
In Paul N. Gardner Defined Plan Trust v. Draper, the court determined to
grant the plaintiffs’ request to voluntarily dismiss litigation in Delaware so that they
could be for permitting a state court to enjoin the further prosecution of vexatious federal
proceedings.”).
35
Gen. Atomic, 434 U.S. at 15.
36
Id. at 17.
37
1979 WL 4632, at *1 (Del. Ch. Dec. 14, 1979).
38
Id.9
could become part of proceedings in California state and federal court.39 The court
remarked that it did not “have the power to enjoin a litigant from prosecuting an
action in personam in a federal court that has jurisdiction over both the parties and
the subject matter.”40
And in Zeneca, Inc. v. Monsanto Co., then-Vice Chancellor Jacobs considered
whether to dismiss an action for lack of subject matter jurisdiction where a plaintiff
seeking legal relief proposed to amend its pleading to add a claim for injunctive
relief.41 Specifically, the plaintiff sought to enjoin the defendant from interfering
with its efforts to register with the United States Environmental Protection Agency.42
The court dismissed the action on other grounds but noted that even if the plaintiff
“could persuasively claim a genuine need for injunctive relief, this Court’s power to
grant that relief is open to serious question.”43 Citing Donovan and General Atomic,
the court explained that “[i]t is well established that under the Supremacy Clause of
the United States Constitution, a state court is without power to enjoin a litigant from
39
1993 WL 125517, at *4 (Del. Ch. Apr. 8, 1993).
40
Id.41
1996 WL 104254, at *3-5 (Del. Ch. Mar. 7, 1996).
42
Id. at *2.
43
Id. at *4 n.3.
10
litigating a claim in a federal court” where “the right to litigate in a federal court [has
been] granted by Congress.”44
Schwartz does not contend that the federal court lacks jurisdiction over the
SDNY Action. He has not cited to any authority where a state court—in Delaware
or otherwise—has enjoined a litigant from proceeding with an in personam action
in a federal court exercising diversity jurisdiction. And this court is aware of none.
The closest authority Schwartz relies on is Munich American Reinsurance Co.
v. Crawford, where the United States Court of Appeals for the Fifth Circuit found
that an Oklahoma state court’s injunction of a federal court arbitration order was
authorized by a federal statute.45 But that case does little to advance Schwartz’s
position. There, the circuit court required the dismissal of an action under a federal
statute that granted primary responsibility over the insurance industry to the states
and preempted the Federal Arbitration Act, leaving the district court “without the
power to compel arbitration.”46 The circuit court was explicit, however, that it was
“not saying that a State has the power to enjoin a party generally from pursuing
44
Id. For the sake of completeness, I note that Donovan was also cited by this court,
without discussion, in Sinclair Can. Oil Co. v. Great N. Oil Co., 233 A.2d 746, 751 (Del.
Ch. 1967).
45
141 F.3d 585, 595-96 (5th Cir. 1998).
46
Id. at 596.
11
federal remedies in federal court” or “that Oklahoma law divested the district court
of its diversity jurisdiction.”47
In this case, no federal statute empowers this court to grant the requested anti-
suit injunction. Schwartz asserts that the court can nonetheless enjoin Cognizant
from prosecuting the SDNY Action because the parties “waived federal jurisdiction”
over claims arising from the Indemnification Agreement by agreeing to a Delaware
forum provision.48 In M/S Bremen v. Zapata Off-Shore Company, however, the
United States Supreme Court held that a forum selection clause does not “oust” a
federal district court of its subject matter jurisdiction over an action.49 Instead, a
forum selection clause presents a question of whether a “court should . . . exercise[]
its jurisdiction to . . . give effect to the legitimate expectations of the parties.”50
47
Id. at 595.
48
Mot. for Anti-Suit Inj. Hr’g Tr. Jan 12, 2022, at 13 (Dkt. 44); see Pl.’s Opening Br. 51-
54. The plaintiff cites to Murakami v. E.L. DuPont De Nemours & Co. to argue that a state
court can enjoin a party from prosecuting a federal action when “a forum selection clause
may bar federal jurisdiction.” 191 F.3d 460 at *3 (9th Cir. 1999) (TABLE). In Murakami,
a state court did not enjoin plaintiffs from litigating a claim in federal court. Instead, the
court held that the plaintiffs had plausibly claimed that the defendant improperly removed
the action to federal court because an operative forum selection provision mandated that
litigation be filed in Hawaii state court. Id.49
407 U.S. 1, 12 (1972); Licensed Prac. Nurses, Technicians & Health Care Workers of
N.Y, Inc. v. Ulysses Cruises, Inc., 131 F. Supp. 2d 393, 402-03 (S.D.N.Y. 2000).
50
Bremen, 407 U.S. at 12.
12
That is not a question for this court to answer.51 It is a matter for the Southern
District of New York, where Bohrer has moved to dismiss the SDNY Action on
forum non conveniens grounds.52 That court is “fully capable” of preventing any
misuse of the “right to pursue federal remedies and take advantage of federal
procedures and defenses in federal actions.”53
Schwartz’s motion for an anti-suit injunction is therefore denied.
B. The Civil Contempt Motion
Schwartz also asks that Cognizant be held in civil contempt. Court of
Chancery Rule 70(b) authorizes the court to find a party in contempt for failing “to
obey or to perform any order.”54 “To be held in contempt, a party must be bound by
an order, have notice of it, and nevertheless violate it.”55
51
See Donovan, 377 U.S. at 411 (“[W]hether or not a plea of res judicata in the second suit
would be good is a question for the federal court to decide.”). This court has previously
recognized its inability to enjoin a party from pursuing litigation in federal court, despite
the existence of a Delaware forum selection provision. See In re Alarm.com, Inc. v.
Comcam Int’l, Inc., C.A. No. 2017-0012-JRS, at 35-40 (Del. Ch. Feb. 22, 2017)
(TRANSCRIPT); Ford Motor Co. v. Paice, LLC, C.A. No. 9143-VCP, at 10-15 (Del. Ch.
Feb. 11, 2014) (TRANSCRIPT).
52
Federal courts have enforced forum selection clauses “through the doctrine of forum non
conveniens.” Lee v. Fisher, 2021 WL 1659842 (N.D. Cal. Apr. 27, 2021); see Ocegueda v.
Zuckerberg, 526 F. Supp. 3d 637, 648 (N.D. Cal. 2021) (“Courts enforce a forum-selection
clause through the doctrine of forum non conveniens.”); but see Seafarers Pension Plan v.
Bradway, 23 F.4th 714 (7th Cir. 2022).
53
Gen. Atomic, 434 U.S. at 18-19.
54
Ct. Ch. R. 70(b).
55
Aveta Inc. v. Bengoa, 986 A.2d 1166, 1181 (Del. Ch. 2009).
13
Schwartz contends that the SDNY Action contravenes this court’s
Implementing and Dismissal Orders in the advancement action. After failing to
prevail on its arguments about Bohrer’s fees here, he argues that Cognizant raised
the same issues in the SDNY Action despite this court retaining jurisdiction to
enforce the Implementing Order. He maintains that the facts presented closely
parallel those in In re TransPerfect Global, Inc., where the court found a party to be
in contempt of an order retaining jurisdiction.56
The facts at issue in TransPerfect are very different from the present matter.
In TransPerfect, the court issued an order retaining “continuing and exclusive
jurisdiction” over all matters relating to the case, including the interpretation and
enforcement of all orders of the court.57 By contrast, the Dismissal Order entered by
Chancellor Bouchard did not retain exclusive jurisdiction over every related matter.
It retained jurisdiction solely to enforce the Implementing Order which, in turn,
requires Cognizant to advance legal fees to Schwartz as required by the
Indemnification Agreement and the Company’s bylaws.58
Cognizant did not violate the Dismissal Order by filing the SDNY Action.
Nor did it “fail to obey” the Implementing Order.59 Schwartz acknowledges that
56
Pl.’s Opening Br. 53-58; see TransPerfect, 2019 WL 5260362, at *1.
57
TransPerfect, 2019 WL 5260362, at *5.
58
C.A. 2019-1004-CB, Dkts. 53, 82.
59
Ct. Ch. R. 70(b).
14
Cognizant has continued to advance his fees as required by the Implementing Order.
Therefore, this court has no basis to hold Cognizant in contempt.
III. CONCLUSION
For the reasons explained above, the plaintiff’s motion for an anti-suit
injunction is denied. The plaintiff’s request that Cognizant be held in civil contempt
is also denied.
15