Schwartz v. Cognizant Tech. Sols. Corp.
| Decision Date | 25 March 2022 |
| Docket Number | C. A. 2021-0634-LWW |
| Parties | STEVEN E. SCHWARTZ, Plaintiff, v. COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION, a Delaware Corporation Defendant. |
| Court | Court of Chancery of Delaware |
Submitted: January 12, 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 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.
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 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 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] 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] 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]
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.
"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 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...
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