P.C. Connection, Inc. v. Synygy Ltd.
| Decision Date | 10 January 2022 |
| Docket Number | C.A. No. 2020-0869-JTL |
| Citation | 268 A.3d 1224 |
| Parties | P.C. CONNECTION, INC. d/b/a Connection, Plaintiff, v. SYNYGY LTD., Synygy LLC, Synygy Pte Ltd., Optymyze Pte Ltd., Optymyze LLC, and Mark A. Stiffler, Defendants. |
| Court | Court of Chancery of Delaware |
Daniel A. Griffith, WHITEFORD TAYLOR & PRESTON LLC, Wilmington, DE; Attorney for Plaintiff P.C. Connection, Inc. d/b/a Connection.
Synygy Ltd., Synygy LLC., Synygy PTE Ltd., Optymyze Pte Ltd., Optymyze LLC, and Mark A. Stiffler, Defendants.
LASTER, V.C.
The court previously entered default judgments against the defendants. Those judgments established liability, but they did not award relief. Accordingly, they qualified as judgments in the colloquial sense, but they were not yet final judgments.
The plaintiff has moved to amend its complaint to add a new claim against two new entity defendants. Because the default judgments were not yet final judgments, the plaintiff properly invoked Court of Chancery Rule 15(a).
Under Rule 15(a), leave to amend is freely given. But that does not mean leave to amend always will be given. When a court has entered a default judgment that has not yet become final, a court must consider carefully any amendment that would include new or different factual allegations against the defaulted defendant or change the claims against that defendant. The entry of the default judgment means that the well-pled allegations in the complaint are established as true as to the defaulted defendant and that the defaulted defendant is liable on the claims against it. Permitting an amendment that would change the factual allegations or the claims likely would require vacating the default judgment, because a defendant might not have defaulted if the defendant knew that a particular factual allegation would be deemed true or a different claim had been asserted. Leaving the default judgment in place would deny due process to the defaulted defendant by permitting the simultaneous filing of a claim and the entry of judgment on that claim without the defendant having an opportunity to respond.
In this case, the plaintiff does not seek to assert new claims or change the nature of the complaint's factual allegations against the already defaulted defendants. The plaintiff seeks to assert related claims against two new entity defendants. Those entities will have an opportunity to respond. This decision therefore grants the plaintiff's motion.
Plaintiff P.C. Connection ("Connection") is a publicly traded Delaware corporation with its principal place of business in Merrimack, New Hampshire. Connection sells custom computer systems and services to businesses and government agencies in the United States. Connection has a sales force of approximately 1,100 employees that it compensates using incentive-based compensation plans.
Defendant Mark A. Stiffler controls a business that provides a software platform for managing compensation plans (the "Compensation Platform"). Stiffler conducts his business through a complex, opaque, and frequently changing mélange of entities that this court has referred to collectively as the "Stiffler Organization." The entity defendants are part of the Stiffler Organization.
In 2013, Connection contracted with the Stiffler Organization to use the Compensation Platform. In 2018, however, Stiffler began demanding that Connection pay fees far greater than those specified in the governing contracts. In 2019, Stiffler tried to coerce Connection to pay the higher fees. Knowing that the Compensation Platform was mission critical software for Connection, Stiffler threatened to cut off access if Connection did not capitulate to his demands.
Connection filed this action to obtain an expedited determination of its rights. At the outset of the case, Connection sought a temporary restraining order to ensure that the Compensation Platform would remain available during the pendency of the litigation. The court entered a temporary restraining order to maintain the status quo. Dkt. 9 (the "Status Quo Order"). The court also scheduled an expedited hearing to determine whether the order should be converted into a preliminary injunction.
The Status Quo Order required that the Stiffler Organization "not discontinue or materially reduce services provided to [Connection] as those services were in use on September 30, 2020, until December 1, 2020, or the Court's ruling on [Connection's] Motion for Preliminary Injunction, whichever comes first." Id. The Stiffler Organization thus had to preserve Connection's access to the Compensation Platform.
On November 20, 2020, the court held a hearing on Connection's application for a preliminary injunction. Dkt. 67. The court took the matter under advisement. The court noted that it had several matters to attend to and informed the parties that the Status Quo Order would remain in effect until the court issued its ruling. Id. at 53; see Dkt. 63. The court thus modified the Status Quo Order to eliminate the December 1 expiration date, causing the Status Quo Order to remain in effect until the court's ruling.
On Christmas Eve, the Stiffler Organization terminated Connection's access to the Compensation Platform. That act facially violated the Status Quo Order, and the court subsequently found the defendants to be in contempt. To induce the defendants to restore access, the court imposed a coercive sanction on the defendants of $50,000 per day until access to the Compensation Platform was restored. Dkt. 76.
On January 7, 2021, the court issued a decision granting Connection's motion for a preliminary injunction. P.C. Connection, Inc. v. Synygy Ltd. (Injunction Decision ), 2021 WL 57016 (Del. Ch. Jan. 7, 2021). The decision converted the Status Quo Order into a preliminary injunction that would remain in effect until the earlier of either the final disposition of this action or March 31, 2021. The court determined that by that date, Connection would have had a reasonable period to transition to a new provider of compensation services and minimize potential losses. After that point, an order requiring access to the Compensation Platform would no longer be necessary.
The defendants still did not restore Connection's access to the Compensation Platform. Connection therefore moved for additional sanctions. Dkt. 80. By order dated January 15, 2021, the court directed the defendants to restore Connection's access to the Compensation Platform by 12:00 p.m. on January 22, 2021. Dkt. 86. The court held that if the defendants did not restore Connection's access by the deadline, then the accrued coercive sanction of $850,000 would convert into a judgment in favor of Connection, with payment due in full by January 29, 2021. The court also put the defendants on notice that if they did not restore access, then the court would entertain a motion by Connection for default judgment.
The defendants failed to restore Connection's access by the court-ordered deadline. On January 27, 2021, Connection moved for the entry of judgment by default. Dkt. 90.
By order dated May 11, 2021, the court entered judgment by default against the original five entity defendants as to Counts I–VIII of the complaint. Dkt. 101 (the "Entity Default Judgment"). The Entity Default Judgment only addressed the issue of liability. It expressly did not address the issue of damages or whether other remedies were appropriate. See id. ¶ 25. Among other things, the court found that "the record supports a meritorious claim for piercing the veils of the entity defendants." Id. ¶ 19(d). The court noted that "Stiffler has shuffled his entities to avoid his legal obligations," "has done so in a manner bearing hallmarks of fraud, which has worked injustice on third parties," and "has treated his entities as his alter egos and instrumentalities." Id.
The Entity Default Judgment did not grant Connection's request for a default judgment against Stiffler. The court noted that there was no record of Connection having served Stiffler with process, and Connection had not presented any authority as to whether service of process was a prerequisite to a default judgment entered as a sanction for the contumacious violation of a court order.
In response to the court's observation, Connection filed a supplemental memorandum of law providing authority for the proposition that service on Stiffler was not a prerequisite to the entry of default judgment under the circumstances in this case. Dkt. 104 at 2. By order dated June 25, 2021, the court entered default judgment against Stiffler on Counts I–VIII of the complaint. Dkt. 113 (the "Stiffler Default Judgment"). The Stiffler Default Judgment also only addressed the issue of liability.
It did not address the issue of damages or other remedies.
On October 6, 2021, Connection moved for leave to file an amended complaint under Court of Chancery Rule 15(a). Dkt. 114. The proposed pleading would "add one additional count seeking declaratory relief in the form of [reverse] veil-piercing against two new defendants, Old Gulph Farm Developers LLC and Elverta Washington Square LLC." Id. ¶ 2. Connection averred that it had not known about these entities before the litigation and that both were believed to be a part of the shifting admixture of entities that Stiffler used to evade his legal obligations. Id. ¶ 4. Connection also noted that this court had only recently recognized reverse veil piercing as a cognizable remedy. Id. ¶ 6 (citing Manichaean Cap., LLC v. Exela Techs., Inc. , 251 A.3d 694, 700 (Del. Ch. 2021) ).
The court denied the motion without prejudice, noting that Connection had not made any effort to address how the entry of a default judgment affected the ability of a party to file an amended complaint under Rule 15(a). Dkt. 115. Observing that it could be problematic to amend a complaint after judgment had been entered, the court stated that more authority and explanation would be needed before the...
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