Court Opinion

ID: 2737775
Source: CourtListenerOpinion
Date Created: 2014-09-29 13:02:26.299738+00
Date Added: 2024-06-11T09:52:17.521635
License: Public Domain

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.