Deutsch v. ZST Digital Networks, Inc. ( 2018 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
PETER E. DEUTSCH, )
)
Plaintiff, )
v. ) C.A. No. 8014-VCL
)
ZST DIGITAL NETWORKS, INC., )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: March 26, 2018
Date Decided: June 14, 2018
Theodore A. Kittila, James G. McMillan, III, HALLORAN FARKAS + KITTILA LLP,
Wilmington, Delaware; David Graff, ROBINS KAPLAN LLP, New York, New York;
Attorneys for Receiver Robert W. Seiden.
David L. Finger, FINGER & SLANINA, LLC, Wilmington, Delaware; Attorney for Non-
parties Bo Zhong and Lin Zhong.
LASTER, V.C.
ZST Digital Networks, Inc. (the “Company”) is a Delaware corporation which,
through three intermediate holding companies, owns an operating company that does
business in China and is organized under Chinese law. The Company raised capital by
accessing the public markets in the United States. It has since delisted.
Peter Deutsch owns a significant block of stock in the Company. Deutsch sought
books and records from the Company. The Company failed to appear, defaulted, and
judgment was entered against it.
Deutsch sought to enforce the default judgment. The Company failed to comply.
Deutsch demonstrated that the Company was in contempt of this court’s order.
As a coercive sanction, I appointed a receiver with the authority to cause the
Company to comply with the judgment. The receiver has spent five years and invested
significant resources attempting to cause the Company to comply. The receiver has
obtained additional orders from this court imposing further sanctions for contempt. The
receiver also has secured the assistance of other courts in multiple domestic and
international jurisdictions.
After other coercive sanctions proved ineffective, the receiver moved for the
issuance of bench warrants calling for the arrest of two senior officers of the Company.
Both are Chinese nationals, but they frequently visit the United States. Because of
arrangements that the United States government has made for the enforcement of arrest
warrants, issuing the bench warrants should result in the senior officers being arrested when
next they visit the United States.
1
The senior officers previously ignored this action. Faced with the current motion,
they hastily appeared and raised a slew of objections, which this decision rejects. This
decision nevertheless holds that the facts of the case call for additional proceedings before
issuing arrest warrants.
The receiver shall submit a form of order that specifically directs the two officers to
take or cause the Company to take the actions which the Company has failed to take to
date. The order shall require compliance within sixty days. If the officers fail to comply
with that order, then the receiver may seek the issuance of bench warrants as a coercive
sanction for contempt.
I. FACTUAL BACKGROUND
The Company defaulted in this action, with the consequence that the court “accepts
as true all the averments in the complaint, as a matter of law.”1 Other facts are drawn from
prior rulings in this case, the receiver’s periodic reports to the court, the Company’s public
filings, the current motion for contempt, and documents submitted in connection with the
motion. Because the Company and its principals have steadfastly ignored this proceeding,
the court has not yet conducted an evidentiary hearing with the benefit of adversarial
presentations. The description of the factual background in this decision, therefore, does
1
Whitwell v. Archmere Acad., Inc., 2008 WL 1735370, at *5 (Del. Super. Apr. 16,
2008); accord Campbell v. Robinson, 2007 WL 1765558, at *3 (Del. Super. June 19, 2007)
(“Upon entering default judgment, the Court accepted as true all well-pleaded allegations
in Plaintiffs’ complaint.”); Carlton Invs. v. TLC Beatrice Int’l Hldgs., Inc., 1996 WL
426501, at *1 (Del. Ch. July 24, 1996) (Allen, C.) (“The effect of a default is simply to
admit all of the well-pleaded allegations of the complaint.”).
2
not represent formal factual findings. It rather represents how the record appears at this
stage.
A. The Holding Company Structure
The Company is the ultimate parent entity in a holding company structure. Through
its subsidiaries, the Company is “principally engaged in supplying digital and optical
network equipment to cable systems operators in the Henan Province of China.”2 Bo Zhong
is the Chairman of the Board and Chief Executive Officer of the Company. His son, Lin
Zhong, is a director and Chief Financial Officer of the Company.3
The Zhongs used the Company as a vehicle for accessing the U.S. capital markets.
In October 2009, the Zhongs and the Company completed an underwritten, all-secondary
offering and listed the Company’s shares on the NASDAQ Global Market.4 The offering
raised approximately $29,976,960. After the offering, the Zhongs controlled 43.57% of the
Company’s shares.5
2
See ZST Digital Networks, Inc., Prospectus 1 (Oct. 20, 2009) [hereinafter
Prospectus]. This court can take judicial notice of public filings with the SEC. See, e.g.,
DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346, 351 n.7 (Del. 2017).
3
The parties and the documents refer inconsistently to the Zhongs, at times placing
their family name first in Chinese fashion (i.e., Zhong Bo and Zhong Lin), and at other
times placing their family name second in Western fashion (i.e., Bo Zhong and Lin Zhong).
The briefs use the latter format, which this decision adopts. Because the Zhongs share a
family name, this decision refers to the father as Bo and the son as Lin. No disrespect is
intended.
4
See generally Prospectus.
5
See Prospectus at 22.
3
The Company’s principal asset is its ownership of 100% of the equity of World
Orient Universal Limited, a corporation organized under the laws of the British Virgin
Islands. World Orient in turn owns 100% of the equity of Global Asia Universal Limited,
also organized under the laws of the British Virgin Islands. Global Asia owns 100% of the
equity of EverFair Technologies, Ltd., a corporation organized under the laws of Hong
Kong. For simplicity, this decision refers to World Orient and Global Asia as the “BVI
Subsidiaries” and to EverFair as the “Hong Kong Subsidiary.”
At the base of the tower is Zhenzhou Shenyang Technology Company Limited, an
entity organized under the laws of the People’s Republic of China and controlled by the
Hong Kong Subsidiary. Directly or through additional subsidiaries of its own, Zhenzhou
Shenyang carries out the Company’s business operations. For simplicity, this decision calls
it the “Operating Company.”
B. The Company Goes Dark.
After its IPO, the Company made a series of regular periodic reports and appeared
to be financially healthy.6 That changed on March 26, 2012, when the Company announced
that its outside auditors had resigned. In their public resignation letter, the auditors stated
that the Company had obstructed their efforts to verify its cash and account balances,
preventing the auditors from satisfactorily completing their audit for fiscal year 2011 and
6
See, e.g., Dkt. 16 Ex. 3 (Company’s Form 10-Q for the quarter ending September
30, 2011, showing over $100 million in assets, only $11.1 in liabilities, and no long-term
indebtedness).
4
forcing them to resign.7 The auditors also stated that they could no longer certify the results
of their audit of the Company’s financial statements for fiscal year 2010.
On April 6, 2012, the Company announced that it was voluntarily delisting its shares
from the NASDAQ. The Company stated that its shares would continue to be available for
over-the-counter trading.8
On May 29, 2012, the Company announced the resignation of Li Zhi Tian, a director
who served on the Audit Committee and the Compensation Committee and who chaired
the Nominating Committee.9
On August 13, 2012, the Company terminated its listing with the United States
Securities and Exchange Commission.10 Following the termination, the Company was no
longer obligated to make periodic filings with the SEC.
C. The Section 220 Action
Deutsch is one of the Company’s largest outside investors. He currently holds
3,931,370 shares of the Company’s common stock.11
7
See Dkt. 16 Ex. 12 (Company’s Form 8-K announcing resignation of the auditors).
8
See Dkt. 16 Ex. 13 (Company press release announcing delisting); see also Dkt.
16 Ex. 14 (Company’s letter to investors seeking to reassure them it was making efforts to
come back into compliance).
9
Compl. ¶¶ 10-12 & Ex. C.
10
Compl. ¶ 13 & Ex. D.
11
Compl. ¶ 7; Dkt. 23 Ex. A.
5
On September 20, 2012, Deutsch sent the Company a demand for books and records
pursuant to Section 220 of the Delaware General Corporation Law (the “DGCL”).12
Deutsch provided a list of information that he sought on an attached schedule.
On October 16, 2012, the Company responded. Acting through its counsel, Pillsbury
Winthrop Shaw Pittman LLP, the Company rejected the demand as technically deficient
and demanded that Deutsch conduct any inspection in China.13
On October 18, 2012, Deutsch provided a revised demand that addressed the
technical objections. He requested that any inspection occur in New York or Delaware.14
On November 2, 2012, Pillsbury Winthrop relayed a letter from the Company reiterating
that any inspection must take place in China.15
On November 7, 2012, Deutsch filed this action and moved for an expedited
schedule. A telephonic scheduling hearing was set for November 16. Pillsbury Winthrop
declined to appear, conveniently asserting that although the firm had represented the
Company in responding to the Section 220 demand, the firm had not been retained to
represent the Company to handle the ensuing Section 220 proceeding.16 A lawyer with the
12
Compl. ¶ 16 & Ex. E.
13
Compl. ¶ 19 & Ex. F.
14
Compl. ¶ 20 & Ex. G.
15
Compl. ¶ 21 & Ex. H.
16
Dkt. 14 at 4-5 (hearing transcript).
6
Delaware law firm of Bayard, P.A. joined the conference but stressed on several occasions
that he had not yet been retained by the Company. 17
I established an expedited schedule consistent with the summary nature of the
proceeding. To facilitate a prompt disposition of the action, I ordered the Company to
answer the complaint by November 21, 2012.18 The Company did not file an answer by
this deadline.
On November 26, 2012, Deutsch moved for entry of default judgment.19 When the
Company did not make any effort to appear or respond to the motion, I held that the
Company had defaulted and entered default judgment.20
The default judgment granted Deutsch the right to inspect the books and records he
sought. It also awarded Deutsch his attorneys’ fees and costs.
D. The Appointment Of The Receiver
The Company made no effort to comply with the default judgment. On January 25,
2013, Deutsch moved to hold the Company in contempt.21 By order dated January 31, I
required the Company to show cause why it should not be held in contempt and set March
17
See id. at 3.
18
See Dkt. 7.
19
Dkt. 10.
20
Dkt. 14.
21
Dkt. 16.
7
18 as the deadline for the Company to file a response.22 The Company did not file a
response. Accordingly, by order dated March 20, I held that the Company had violated the
default judgment and was in contempt.23
The order finding the Company in contempt awarded Deutsch the relief he had
requested in his motion. That relief included (i) the attorneys’ fees and costs incurred
prosecuting the contempt claim, (ii) an option to put his shares to the Company at a price
of $8.21 (the “Put Right”), and (iii) the appointment of a receiver pursuant to Section 322
of the DGCL “for the purpose of enforcing the Company’s compliance with the Court’s
orders.”24
On March 25, 2013, Deutsch exercised the Put Right.25 He also submitted a form of
order to appoint Robert W. Seiden as the receiver. I entered the order on March 28.26 The
order empowered the receiver to “take all actions he deems appropriate to obtain [the
22
Dkt. 18.
23
Dkt. 22.
24
Id. ¶ 4; see 8 Del. C. § 322 (“Whenever any corporation shall refuse, fail or neglect
to obey any order or decree of any court of this State within the time fixed by the court for
its observance, such refusal, failure or neglect shall be a sufficient ground for the
appointment of a receiver of the corporation by the Court of Chancery.”).
25
Dkt. 23 Ex. A.
26
Dkt. 24.
8
Company’s] compliance with” the default judgment, the orders entered to date, and “such
other and further orders as the Court may enter in this action.”27
The order granted the receiver broad powers for purposes of compelling
compliance. Paragraph 3 of the order stated:
The Receiver shall have all powers generally available to a receiver
appointed pursuant to 8 Del. C. § 291, unless any such power would be
inconsistent with a specific provision of this Order, in which case this Order
shall govern. Upon the acceptance of this appointment, the Receiver shall
have full authority and control over the property and/or assets of the
Company, of whatever kind and wherever located, in the United States of
America, the People’s Republic of China or elsewhere. This includes,
without limitation, authority to seize, deal in or dispose of any property of
the Company. The Receiver shall have full and unrestricted access to all
books and records of the Company, in whatever mode maintained and
wherever located, in the United States of America, the People’s Republic of
China or elsewhere. The Receiver may assert sole control over any present
bank or other accounts of the Company and/or establish signature authority
over such accounts as the Receiver deems appropriate. The Receiver shall
have the power to commence, continue, join in, and/or control any action,
suit or proceeding, of any kind or nature, in the name of the Company or
otherwise, including without limitation proceedings to prevent or avoid
transactions of any kind or nature that may hinder the Company’s compliance
with this Court’s orders. The Receiver is authorized, in his sole discretion, to
enlist the help of the employees or agents of the Company. The directors,
officers, employees, and agents of the Company shall cooperate with the
Receiver in the performance of his duties. The Receiver is authorized, in his
sole discretion, to enlist the help of agents, employees or representatives of
the governments of the United States of America, the People’s Republic of
China, or any other nation, or of any regional or local governments therein,
or of any other regulatory body. The Receiver shall have the authority, but
shall not be required, to petition this Court for instructions at any time or
from time to time.28
27
Id. ¶ 3.
28
Id.
9
Paragraph 6 authorized the receiver “to act through and in the name of the Company to
carry out his duties.”29 The same paragraph authorized the receiver “to execute and deliver
(or cause to be executed and delivered) any document in the name of the Company,
including but not limited to contracts, deeds, other documents of title, and regulatory,
administrative and governmental filings.”30
The order also instructed the Company’s officers and directors to cooperate with the
receiver’s efforts. Paragraph 8 stated:
The appointment of the Receiver hereunder is binding upon the directors,
officers, employees, agents and stockholders of the Company, who shall
cooperate with the Receiver in the performance of his duties. Neither the
Company, nor [any] person acting or purporting to act on behalf of the
Company, nor any director, officer, employee, agent, stockholder or creditor
of the Company shall institute any proceeding in any forum other than this
Court challenging any action, recommendation or decision by the Receiver.31
Under this paragraph, the Zhongs are obligated to cooperate with the receiver.
E. The Receiver Takes Control Of The BVI And Hong Kong Subsidiaries
Using his authority, the receiver petitioned the United States District Court for the
Southern District of New York for the issuance of orders authorizing the receiver to seize
books and records held by the Company’s former CFO, its investor relations firm, and its
29
Id. ¶ 6 (the “Authority Paragraph”).
30
Id.
31
Id. ¶ 8 (the “Cooperation Paragraph”).
10
accountants. On April 16, 2013, the federal court issued the orders, and the receiver
obtained the documents.32
The receiver next began the difficult process of exercising control over the BVI
Subsidiaries, the Hong Kong Subsidiary, and the Operating Company. The boards of
directors of the BVI Subsidiaries resisted, necessitating efforts to replace those individuals
with directors who would cooperate with the receiver. To facilitate these efforts, the
receiver sought an order confirming his authority to vote the shares of the Company’s direct
and indirect subsidiaries, including to effectuate changes to their respective boards of
directors. By order dated April 19, 2013, I confirmed that the receiver had this authority.33
Exercising his authority, the receiver replaced the directors of the BVI Subsidiaries
and sought an order from a British Virgin Islands court confirming the validity of his
actions.34 On May 31, 2013, Bo filed a lawsuit in the same court contesting the receiver’s
actions.35 The British Virgin Islands court rejected Bo’s efforts, and on July 25, the Eastern
Caribbean Supreme Court dismissed his challenge.36
32
See Dkt. 34 at 3.
33
Dkt. 31.
34
Dkt. 194 ¶ 3. This docket item contains an Affidavit of Court-Appointed Receiver
Robert W. Seiden, Esq. in Support of Motion for Contempt, cited hereafter as “Seiden Aff.”
35
Dkt. 47 at 4; see also Seiden Aff. ¶ 3.
36
Dkt. 73 Ex. A.
11
The receiver next caused the second-tier BVI Subsidiary to exercise its voting power
as the sole stockholder of the Hong Kong Subsidiary to remove Xue Na, the sole director
of the Hong Kong Subsidiary, and appoint new directors. Na refused to recognize the
legitimacy of these actions. To confirm their validity, the receiver caused the Hong Kong
Subsidiary to convene an extraordinary general meeting at which Na was removed and new
directors appointed.37
F. Na’s Attempt At Intervention
On August 14, 2013, Na moved to intervene in this action in her individual capacity
as a stockholder of the Company. She sought to modify the orders holding the Company
in contempt and appointing the receiver. She argued that she had standing as a stockholder
to take these steps because the receiver’s actions were harming her. 38 Duane Morris LLP
represented Na. At the time, Duane Morris was serving as counsel to the Company in
several pending matters in other jurisdictions.
Deutsch and the receiver opposed Na’s motion. They portrayed the motion as a
thinly veiled attempt by the Zhongs to defend the action by proxy after permitting the
Company to default. They argued that the motion should be denied and conditions imposed
on the appearance of any stockholder who sought to represent the Company.39
37
Dkt. 40 at 5-6; Seiden Aff. ¶ 4.
38
Dkt. 60.
39
Dkt. 64.
12
A hearing on Na’s motion was held on August 23, 2013. I ruled that the Company,
not Na, was the proper party to seek the relief that Na requested and that Na had no standing
to intervene in her capacity as a stockholder. I granted the Company two weeks in which
to appear if it wished to seek the relief that Na had requested. I also held that the Company
should have to satisfy conditions before being able to set aside the default judgment and
litigate the case on the merits, such as paying the expenses that Deutsch and the receiver
had incurred. Rather than imposing conditions unilaterally, I instructed the parties to confer
on appropriate conditions under which the default judgment would be set aside.40
On September 6, 2013, Duane Morris entered an appearance on behalf of the
Company,41 but the parties were unable to agree on an appropriate set of conditions. 42 On
September 23, I held a status conference.43 Afterwards, the parties engaged in extensive
efforts to reach an amicable resolution that included teleconferences and in-person
meetings,44 but they could not reach agreement.45
40
Dkt. 81 at 26-27, 37-39 (transcript).
41
Dkt. 77.
42
Dkt. 83.
43
Dkt. 87.
44
See Dkts. 88, 91.
45
Dkt. 93.
13
On November 12, 2013, I entered an Order Establishing Conditions for Defendant’s
Post-Default Judgment Participation in this Action (the “Conditions Order”).46 It provided
that before the Company or any of its affiliates, including Na, Bo, or the Company’s other
directors or officers, could appear and participate in this action, the Company would have
to:
 “[P]rovide [Deutsch] and [the] Receiver with (i) unaudited financial
statements (i.e., balance sheets and income statements) for the quarter
ended September 30, 2013 and (ii) audited financial statements for the
year ended December 31, 2012. On a continuing basis, [the Company]
shall provide (i) unaudited quarterly and annual financial statements
within ten calendar days following the end of each such reporting
period and (ii) audited annual financial statements within a reasonable
period of time following the end of each reporting year.”47
 “[P]ay to the Receiver the sum of $2,020,000, which sum
approximates the amount of fees and expenses incurred by the
Receiver through October 20, 2013, plus interest from that date until
the date of payment, calculated at the legal rate compounded
quarterly. In the alternative, [the Company] shall post with the
Register in Chancery a bond with surety in the amount of $3 million,
in a form satisfactory to the Court, and [the Company] shall make
interim payments to the Receiver of $200,000 per month until such
time as all fees and expenses then due and outstanding are paid in full.
If [the Company] has posted a bond, then periodically but not more
frequently, [the Company] may apply to reduce the amount of the
bond by the amount paid.”48
 “For the purpose of providing security for [the Company’s]
outstanding debt to [Deutsch] pursuant to the [Put Right] . . . post with
46
Dkt. 98.
47
Id. ¶ 2.
48
Id. ¶ 3.
14
the Court a bond with surety, in a form satisfactory to the Court, in
the amount of $5 million.”49
The Conditions Order gave the Company until November 29, 2013 to enter an appearance
in compliance with its terms. After that, the Company would be deemed to “again have
waived voluntarily its right to appear and participate in this action . . . [and] be deemed a
non-party for purposes of service and access to documents filed with the Court.” 50 The
Company did not enter an appearance.
G. Efforts To Sell The Operating Company
After the parties’ negotiations failed and the Company did not appear, the receiver
decided to try to sell the Hong Kong Subsidiary. In December 2013, he engaged Aegis
Capital Corporation to act as financial advisor in connection with the sale.51
On December 17, 2013, the receiver moved for the entry of an order establishing
procedures to govern the sale process.52 No one opposed the motion. I held a hearing at
which no one appeared to object. By order dated January 16, 2014, I approved the proposed
sale process.53
49
Id. ¶ 4.
50
Id. ¶ 5.
51
Seiden Aff. ¶ 7; see also Dkt. 129 ¶ 5 (the “Gazdak Aff.”).
52
Dkt. 104.
53
Dkt. 117.
15
The receiver carried out a sale process in accordance with the order. His advisors
sent teasers to over forty potential bidders.54 Five potential bidders expressed interest,
entered into nondisclosure agreements, and conducted diligence.55 One bidder submitted a
letter of intent offering to acquire the Hong Kong Subsidiary for $15 million, subject to
due diligence and other conditions.56 One condition required negotiations with Bo, Lin,
and other members of the Operating Company’s management team.57
In violation of the Cooperation Paragraph in the order appointing the receiver, Bo,
Lin, and the management team did not cooperate with the receiver’s efforts. They refused
to grant any physical access to the Operating Company’s facility or to provide the bidder
with additional financial information.58 In the face of this resistance, the potential buyer
withdrew.
Undeterred, the receiver engaged Business Development Asia (HK) Ltd., a financial
advisor that specializes in cross-border transactions involving Asian assets. With the
assistance of the new firm, the receiver conducted a new sale process.59 This time,
54
Gazdak Aff. ¶¶ 10-11.
55
Id. ¶ 12.
56
Id. ¶ 14.
57
Id. ¶¶ 16-17.
58
Seiden Aff. ¶ 7; see also Dkt. 137.
59
See Dkt. 147 at 2 & Ex. A.
16
approximately a dozen parties expressed interest.60 They too wanted current financial
information and cooperation from management.61 Again in violation of the Cooperation
Paragraph, Bo, Lin, and the management team again did not cooperate with the receiver’s
efforts.
In October 2014, the receiver and Bo met to discuss settlement. Although they did
not reach agreement, the receiver agreed to pause any enforcement efforts pending another
meeting in February 2015.62 That meeting failed to produce an agreement.63
H. Transfers Of Company Assets
On June 23, 2015, the Hong Kong Subsidiary passed a resolution (i) removing Bo
as a director and the legal representative of the Operating Company and replacing him with
the receiver’s nominee and (ii) ordering Bo to surrender the Operating Company’s
registration documents and “chops.”64 Bo responded by transferring real estate and other
assets worth approximately $3 million from the Company to Wilke Technology Co. Ltd.,
a company controlled by Lin.65
60
Dkt. 150 at 2.
61
Id.; Dkt. 153 at 2
62
Dkt. 155 at 2.
63
See Dkt. 166.
64
Seiden Aff. ¶ 9. A company’s “chops” are the Chinese equivalent of a corporate
seal, but have greater significance as a source of legal authority under Chinese law.
65
Id.
17
The receiver sued Bo in China over the transfers.66 On October 27, 2015, the
Chinese court dismissed the lawsuit for failing to comply with certain technical
requirements.67 The dismissal was affirmed in February 2016.68
In July 2016, the receiver and Bo held a face-to-face meeting in China. After a full
day of negotiations, the parties reached an agreement in principle on the terms for
settlement. But once the receiver returned to the United States, Bo reneged.69
After the failed negotiations in the summer of 2016, the receiver spent over a year
attempting to apply pressure on Bo through diplomatic channels.70 Those efforts also
failed.
I. The Contempt Motion
On January 11, 2018, the receiver moved for a Rule to Show Cause why Bo and Lin
should not be held in contempt for failing to cooperate with the receiver. By order dated
January 19, I entered an order to show cause. It stated:
1. A hearing (the “Hearing”) shall be held on March 26, 2018 at 2:00
p.m. (Eastern) before Vice Chancellor J. Travis Laster, Court of
Chancery of the State of Delaware, 500 North King Street,
Wilmington, Delaware 19801, at which time Mr. Bo Zhong and Mr.
Lin Zhong shall appear and show cause as to why they should not be
held in civil and criminal contempt for this Court’s orders pursuant to
66
Dkt. 173.
67
Dkt. 176.
68
Dkt. 179 at 2.
69
Dkt. 182.
70
See Dkts. 185, 188.
18
Court of Chancery Rule 70(b) and Rule 71, and at which time the
Court may consider such other and further relief as the Court deems
appropriate and enter an order of civil and criminal contempt;
2. Mr. Bo Zhong and Mr. Lin Zhong shall submit any papers in response
to the Receiver’s motion for an order of civil and criminal contempt
not less than 7 days before the Hearing; and
3. The Receiver shall forward a copy of this order and the pleadings
related to the motion to the last known address for [] Mr. Bo Zhong
and Mr. Lin Zhong, and shall certify to the Court the manner in which
such notice has been given.71
The receiver delivered the order and copies of his filings to Bo via email, text
message, and Federal Express.72 Bo’s assistant confirmed that he had received the
documents and had forwarded them to Bo.73 In several communications, Bo told the
receiver that he could not travel abroad to attend the hearing.74 Through his assistant, Bo
subsequently asked the receiver to postpone the hearing.75
71
Dkt. 199 ¶¶ 1-3. The Order to Show Cause was granted as proposed by the
Receiver, with a modification to add the date and time of the hearing. This text shows the
Order to Show Cause as modified.
72
See Dkt. 205 ¶¶ 3-14. This docket item contains an Affidavit of Zhenling Zhang
in Support of Reply Brief on Motion for Rule to Show Cause, cited hereafter as “Zhang
Aff.”
73
Id. ¶ 5 & Ex. A.
74
Zhang Aff. ¶¶ 7-9.
75
Id. ¶ 13.
19
On March 19, 2018, the last possible day to respond, counsel entered a limited
appearance on behalf of the Zhongs. Counsel filed a ten-page opposition advancing various
reasons why the Zhongs could not be held in contempt.
II. LEGAL ANALYSIS
The receiver seeks an order holding the Zhongs in contempt and the issuance of
bench warrants to arrest the Zhongs as a coercive sanction to compel them to comply with
this court’s orders. Courts have inherent authority to impose contempt sanctions for
violations of their orders.76 The power “is essential to the administration of justice.”77 Court
of Chancery Rule 70(a) codifies this court’s inherent authority to enter contempt sanctions.
The rule recognizes that the court may “adjudge [a] party in contempt” if the party “fails
to comply within the time specified” with “a judgment direct[ing] a party to . . . perform
any . . . specific act.”78
The Zhongs have raised a series of technical and procedural objections to the
receiver’s motion. This decision rejects each of those objections. It nevertheless concludes
that it is premature to issue bench warrants at this time and that the Zhongs will be given
one final chance to comply with this court’s orders.
76
DiSabatino v. Salicete, 671 A.3d 1344, 1348 (Del. 1996) (“Courts have ‘an
inherent contempt authority, . . . as a power necessary to the exercise of all others.’”
(quoting United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 831 (1994))).
77
Id. (quoting Young v. United States ex rel. Vuitton et Fils, S.A., 481 U.S. 787, 795
(1987)).
78
Ct. Ch. R. 70(a).
20
A. Satisfaction Of The Conditions Order
As a threshold matter, the receiver contends that the Zhongs cannot appear or make
any submissions without first satisfying the requirements imposed on the Company in the
Conditions Order. The receiver argues that the Zhongs’ filings should be stricken on that
basis. The Zhongs counter with the bold assertion that the Conditions Order violates the
Delaware Constitution and the Constitution of the United States of America.
Court of Chancery Rule 60(b) authorizes the court to vacate a default judgment
“upon such terms as are just.”79 As Chancellor Chandler noted while writing as a Judge on
the Delaware Superior Court, the power to impose conditions before vacating a default
judgment enables a court to protect a plaintiff by, among other things, “requiring the
defendant to post a bond for the amount of the judgment.”80 Although this court has rarely
exercised this power, federal courts have analyzed frequently the analogous Federal Rule
of Civil Procedure.81 Federal decisions hold that “[t]he imposition of conditions . . . can be
used to rectify any prejudice suffered by the nondefaulting party as a result of the default
79
Ct. Ch. R. 60(b).
80
Canton Inn, Inc. v. Sec. Ins. Co., 1986 WL 2258, at *2 (Del. Super. Jan. 31, 1986).
81
“Decisions interpreting the Federal Rules of Civil Procedure are usually of great
persuasive weight in the construction of parallel Delaware rules; however, such decisions
are not actually binding upon Delaware courts.” Cede & Co. v. Technicolor, Inc., 542 A.2d
1182, 1191 n.11 (Del. 1988) (citation omitted); see also Ross v. Ross, 1994 WL 590494, at
*2 (Del. Oct. 11, 1994) (TABLE) (“Because Rule 60(b) of the Family Court is based on
Rule 60(b) of the Federal Rules of Civil Procedure, the construction of a Federal Rule by
the federal judiciary is given great persuasive weight in the interpretation of a Delaware
counterpart.”).
21
and the subsequent reopening of the litigation.”82 “Accordingly, a number of circuits have
approved of conditioning the vacatur of defaults or default judgments on the posting of
security for payment of all or part of an eventual adjudicated judgment.”83 There is nothing
defective about the Conditions Order, which imposed conceptually similar conditions on
the ability of the Company to appear, vacate the default judgment, and litigate this matter
on the merits.
The receiver’s motion seeks to impose coercive sanctions on Bo and Lin. The
Conditions Order does not restrict their ability to appear and respond to a motion that is
directed at them. It was the Company that defaulted in this action; the Zhongs did not. In
any event, an appropriate respect for due process means that the Zhongs should have an
opportunity to respond to the receiver’s motion without first satisfying the obligations of
the Company. The Zhongs filings will not be stricken, and they will be able to appear and
defend against any further proceedings related to the receiver’s motion for contempt
against them without first satisfying the requirements of the Conditions Order.
82
10A Alan Wright et al., Federal Rules of Civil Procedure § 2700 (4th ed. 2017);
see also Serv. Empls. Int’l Union Nat’l Indus. Pension Fund v. Hamilton Park Health Care
Ctr., Ltd, 304 F.R.D. 65, 71-72 (D.D.C. 2014); Gilmore v. Palestinian Interim Self-Gov’t
Auth., 675 F. Supp. 2d 104, 114 (D.D.C. 2009); Chase Manhattan Bank v. Iridium Africa
Corp., 2004 WL 1588295, at *2 (D. Del. July 8, 2004); Capital Yacht Club v. Vessel
AVIVA, 228 F.R.D. 389, 395 (D.D.C. 2005).
83
Powerserve Int’l, Inc. v. Lavi, 239 F.3d 508, 515 (2d Cir. 2001) (collecting cases).
22
B. The Zhongs’ Non-Party Status
The Zhongs next argue that because they are not formally parties to this case, they
cannot be held in contempt. That is incorrect. An order generally binds not only the named
parties, but also “those identified with them in interest, in ‘privity’ with them, represented
by them or subject to their control.”84 This doctrine ensures that a party cannot nullify or
evade an order “by carrying out prohibited acts through aiders and abettors, although they
were not parties to the original proceeding.”85 The Court of Chancery Rules recognize that
in appropriate circumstances, an order can be enforced against non-parties.86
Under these principles, an order that applies to an entity extends to directors,
officers, and employees of the entity who are acting on behalf of the entity.87 This doctrine
recognizes that
84
Regal Knitwear Co. v. NLRB, 324 U.S. 9, 14 (1945).
85
Id.
86
See Ct. Ch. R. 65(d) (recognizing that an order granting an injunction in binding
not only upon the parties but also upon “their officers, agents, servants, employees, and
attorneys, and upon those persons in active concert or participation with them who receive
actual notice of the order by personal service or otherwise”); Ct. Ch. R. 71 (providing that
“when obedience to an order may be lawfully enforced against a person who is not a party,
that person is liable to the same process for enforcing obedience to the order as if that
person were a party”).
87
See Fulk v. Wash. Serv. Assocs., Inc., 2002 WL 1402273, at *11 (Del. Ch. June
21, 2002) (holding that the “officers, employees or agents” of the contemnor “will all be
bound by any injunction directed against the current parties”); Arbitrium (Cayman Is.)
Handels AG v. Johnston, 1997 WL 589030, at *4 (Del. Ch. Sept. 17, 1997) (enforcing
order against individuals “in their capacity as agents of the corporation”); accord Nat’l
Spiritual Assembly of Baha’is of U.S. Under Hereditary Guardianship, Inc. v. Nat’l
Spiritual Assembly of Baha’is of the U.S., Inc., 628 F.3d 837, 847 (7th Cir. 2010)
(“[O]fficers, employees, and other agents of an enjoined party must obey the injunction—
23
[a] command to the corporation is in effect a command to those who are
officially responsible for the conduct of its affairs. If they, apprised of the
writ directed to the corporation, prevent compliance or fail to take
appropriate action within their power for the performance of the corporate
duty, they, no less than the corporation itself, are guilty of disobedience, and
may be punished for contempt.88
Put differently, “[a]n order issued to a corporation is identical to an order issued to its
officers, for incorporeal abstractions act through agents.”89
As a fallback argument, the Zhongs attempt to evade this doctrine through sophistry.
They contend that because this court appointed a receiver with power to act on behalf of
the corporation, and because the Zhongs have been resisting the receiver rather than
colluding with him, they cannot be liable for contempt as agents of the corporation. As the
Zhongs see it, the same order that imposed on them a requirement to cooperate with the
receiver liberated them from having to comply with that obligation because they could no
longer be deemed to be acting on behalf of the Company. In reality, the Zhongs have
continued to exercise actual, real-world control over the Company’s property and have
used that control to resist the authority of the receiver. That is sufficient to make them
subject to a potential finding of contempt.
even though they are not named parties—when they act in their official capacities.”); New
York ex rel. Vacco v. Operation Rescue Nat’l, 80 F.3d 64, 70 (2d Cir. 1996) (“An injunction
issued against a corporation or association binds the agents of that organization to the
extent they are acting on behalf of the organization.”).
88
Wilson v. United States, 221 U.S. 361, 376 (1911).
89
Reich v. Sea Sprite Boat Co., Inc., 50 F.3d 413, 417 (7th Cir. 1995) (Easterbrook,
J.).
24
C. Personal Jurisdiction
The Zhongs also contend that this court lacks personal jurisdiction over them and
therefore cannot hold them in contempt. They point out that a party charged with contempt
“is always at liberty to defend his disregard of the court’s order by showing that the order
was void for lack of jurisdiction.”90 Where, as here, no evidentiary hearing has been held
“the plaintiff bears the burden” of making “a prima facie showing of personal
jurisdiction.”91
The receiver has made the necessary prima facie showing that the Zhongs are
subject to personal jurisdiction under Section 3114 of Title 10 of the Delaware Code.
Section 3114 contemplates a two-pronged analysis. First, the court must analyze whether
Section 3114 “provides a proper statutory basis” for its exercise of personal jurisdiction.92
Second, it must determine “whether the exercise of personal jurisdiction . . . is consistent
with [the party’s] constitutional expectations of due process.”93
Section 3114 provides a proper statutory basis for exercising personal jurisdiction
over the Zhongs. Subsection 3114(a) states:
Every nonresident of this State who after September 1, 1977, accepts election
or appointment as a director . . . of a corporation organized under the laws of
this State . . . shall, by such acceptance . . . , be deemed thereby to have
consented to the appointment of the registered agent of such corporation (or,
90
Mayer v. Mayer, 132 A.2d 617, 621 (Del. 1957).
91
Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007).
92
Hazout v. Tsang Mun Ting, 134 A.3d 274, 292 (Del. 2016).
93
Id.
25
if there is none, the Secretary of State) as an agent upon whom service of
process may be made in all civil actions or proceedings brought in this State,
by or on behalf of, or against such corporation, in which such director, trustee
or member is a necessary or proper party, or in any action or proceeding
against such director, trustee or member for violation of a duty in such
capacity, whether or not the person continues to serve as such director, trustee
or member at the time suit is commenced. Such acceptance or service as such
director, trustee or member shall be a signification of the consent of such
director, trustee or member that any process when so served shall be of the
same legal force and validity as of served upon such director, trustee or
member within this State and such appointment of the registered agent (or, if
there is none, the Secretary of State) shall be irrevocable.94
Subsection 3114(b) provides analogous jurisdictional authority for officers of the entity.
As the Delaware Supreme Court has explained, Section 3114 permits this court to
exercise personal jurisdiction when an officer or director of a corporation “(i) is a
‘necessary or proper party’ to an action against the corporation; or (ii) violated a statutory
or fiduciary duty in his capacity as a director and officer.”95
The Zhongs are “proper” parties for purposes of the contempt proceedings. A proper
party is one “who may be joined in a case for reasons of judicial economy but whose
presence is not essential to the proceeding.”96 If the Company had complied with this
court’s orders, then contempt proceedings against the Zhongs would not be necessary. At
this point, because the Company has persisted in failing to comply with this court’s orders,
it is proper for the court to consider contempt proceedings against the Zhongs in their
94
10 Del. C. § 3114(a).
95
Hazout, 134 A.3d at 280.
96
Party, Black’s Law Dictionary (10th ed. 2014); see also Hazout, 134 A.3d at 289
n.56 (citing definition).
26
capacities as Company representatives. Indeed, exercising jurisdiction over the Zhongs is
arguably necessary for that purpose. The power to assert jurisdiction therefore exists under
Section 3114.
Exercising jurisdiction over the Zhongs comports with constitutional due process.
“The focus of this inquiry is whether [the party] engaged in sufficient ‘minimum contacts’
with Delaware to require it to defend itself in the courts of this State consistent with the
traditional notions of fair play and justice.”97 “Once it has been decided that a defendant
purposefully established minimum contacts with the forum State, these contacts must be
considered in light of other factors to determine whether the assertion of personal
jurisdiction would comport with fair play and substantial justice.”98
In my view, this is not a close call. “By becoming a director and officer of a
Delaware corporation” each of the Zhongs “purposefully availed himself of certain duties
and protections under our law.”99 This action and the potential imposition of contempt
sanctions arises from the Zhongs’ acceptance of those position. The Delaware Supreme
Court explained the implications of these facts when holding that the exercise of personal
97
AeroGlobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 440 (Del.
2005) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
98
Sternberg v. O’Neil, 550 A.2d 1105, 1122 (Del. 1988) (citing Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 477 (1985)), abrogated on other grounds by Genuine Parts
Co. v. Cepec, 137 A.3d 123 (Del. 2016).
99
Hazout, 134 A.3d at 292.
27
jurisdiction under Section 3114 comported with due process for purposes of a derivative
action:
The instant litigation seeks to hold the defendants accountable to the
Company for their actions as directors of a Delaware corporation. Their
status as directors and their power to act in that capacity arise exclusively
under the Delaware corporation statutes. The defendants accepted their
directorship with explicit statutory notice, via § 3114, that they could be
haled into the Delaware Courts to answer for alleged breaches of the duties
imposed on them by the very laws which empowers them to act in their
corporate capacities. Moreover, the defendants, by purposefully availing
themselves of the privilege of becoming directors of a Delaware corporation,
have thereby accepted significant benefits and protections under the laws of
this State.100
The same reasoning applies to this case. When they accepted their roles as officers and
directors of a Delaware corporation, the Zhongs were on notice that they could be required
to cause the Company to comply with its obligations under Section 220. It should come as
no surprise that they are now being brought before the Court of Chancery to enforce
compliance. Exercising personal jurisdiction over the Zhongs for purposes of this contempt
proceeding comports with due process.
D. Other Due Process Concerns
Separate and apart from personal jurisdiction, the Zhongs advance a series of
arguments in which they contend that they are being denied due process. Although I believe
that the proceedings to date have satisfied the requirements of due process, this decision
100
Armstrong v. Pomerance, 423 A.2d 174, 176 (Del. 1980) (citations omitted).
28
requires that the receiver take additional steps before the court will hold the Zhongs in
contempt and issue the requested sanctions.
1. The Amount Of Process That Is Due
The amount of process that an alleged contemnor is due depends on whether the
alleged contemnor faces civil or criminal contempt. “[C]ivil contempt sanctions . . . may
be imposed in an ordinary civil proceeding upon notice and an opportunity to be heard.”101
By contrast, “criminal contempt proceedings must meet the State and Federal
Constitutional requirements for the trial and punishment of crimes.”102
“The distinction between criminal and civil contempt is often cloudy at best but
there are commonly used parameters for distinguishing the two.” 103 The fact that a party
faces imprisonment as a potential sanction does not mean that the contempt is necessarily
criminal.104 Rather, the distinction turns on the purpose of the sanction and the means of
purging it. “[W]here the primary purpose is to punish, a contempt proceeding is criminal
101
Bagwell, 512 U.S. at 827; see also DiSabatinno, 671 A.2d at 1349 (adopting
language).
102
DiSabatinno, 671 A.2d at 1349.
103
City of Wilmington v. Gen. Teamsters Local Union 326, 321 A.2d 123, 125 (Del.
1974).
See DiSabattino, 671 A.2d at 1350 (“The sanction of imprisonment can be
104
imposed for either civil or criminal contempt of court.”); see also 10 Del. C. § 370 (“The
Court of Chancery may enforce obedience to its judgments by imprisonment of the body,
or by sequestration of lands.”).
29
in character and, where the primary purpose is to coerce, it is civil.”105 Issuing an arrest
warrant and confining a party falls under the heading of civil contempt if the court
contemplates “confining [the] contemnor indefinitely until he complies with an affirmative
command.”106 “Conversely, a fixed term of imprisonment is punitive and criminal if it is
imposed retrospectively for a past act of disobedience, and cannot be avoided or abated by
subsequent compliance with the court’s order.”107
Here, the receiver expressly seeks a finding of civil contempt and the issuance of
arrest warrants as a coercive sanction to compel compliance. He asks that the court arrest
the Zhongs and hold them in custody only until they cause the Company to comply with
this court’s orders. The receiver identifies five ongoing acts by the Zhongs that he asserts
violate the court’s orders:
 Refusing to provide current financial statements of the Company;
 Refusing to turn over control of the property and assets of [the
Company] and its direct (and indirect) wholly-owned and controlled
subsidiaries;
 Refusing to reconstitute the Board of Directors; . . .
105
Gen. Teamsters Local, 321 A.2d at 125; see also DiSabattino, 671 A.2d at 1349-
50 (“[A] contempt sanction is considered civil if it is remedial, and for the benefit of the
complainant. But if it is for criminal contempt the sentence is punitive, to vindicate the
authority of the court.” (internal quotation marks omitted) (quoting Bagwell, 512 U.S. at
827-28)).
106
DiSabattino, 671 A.2d at 1350 (quoting Bagwell, 512 U.S. at 828).
107
Id.
30
 Refusing to surrender the corporate seals and change the legal
representative of the Company[; and] . . .
 Divert[ing] the assets of the Company to a new company that resides
outside the control of the Receiver, in an attempt to circumvent this
Court’s orders and the demands of the Receiver.108
Because the requested arrest would only last until the contemptuous conduct ceases, the
receiver seeks only civil contempt. Therefore, due process requires only that the Zhongs
be afforded notice and an opportunity to be heard.
2. Notice
“[P]rior to an action which will affect an interest in life, liberty, or property protected
by the Due Process Clause of the Fourteenth Amendment, a State must provide ‘notice
reasonably calculated, under all circumstances, to apprise interested parties of the pendency
of the action and afford them an opportunity to present their objections.’”109 In the case of
contempt, the notice must inform the alleged contemnor “of the contempt charges and of
the contempt hearing [and] must be explicit.”110 The standard for adequate notice is one of
108
Dkt. 197 at 1-2 (formatting altered).
109
Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 795 (1983) (quoting Mullane
v. Cent. Hanover Bank & Tr. Co., 399 U.S. 306, 314 (1950)).
110
Little v. Kern Cty. Superior Court, 294 F.3d 1075, 1081 (9th Cir. 2002).
31
reasonableness.111 “Adequate notice typically takes the form of a show-cause order and a
notice of hearing identifying each litigant who might be held in contempt.”112
In my view, the Order to Show Cause already provided adequate notice to the
Zhongs to satisfy due process. It identified the Zhongs as the alleged contemnors and
identified the time and place of the hearing. The receiver provided the Zhongs with the
Order to Show Cause and his supporting brief, which identified all of the alleged acts of
contempt.
Nonetheless, the circumstances warrant taking an additional step. This proceeding
is unusual because the receiver seeks to hold the Zhongs in contempt of orders which do
not identify the Zhongs by name, and which impose broad mandates rather than specific
demands. For example, the receiver asserts that the Zhongs have violated the Authority
Paragraph, which gives the receiver authority over the Company’s books, records, and
111
See Taylor v. Hayes, 418 U.S. 488, 498-99 (1974) (explaining that the alleged
contemnor is entitled to “reasonable notice of the specific charges”).
112
Waste Mgmt. of Wash., Inc. v. Kattler, 776 F.3d 336, 340 (5th Cir. 2015). Due
process also requires that the notice be served using means “such as one desirous of actually
informing the absentee might reasonably adopt to accomplish it.” Mullane, 462 U.S. at
314-15. The “amenities of original process need not be followed.” 11A Alan Wright et al.,
Federal Rules of Civil Procedure § 2956 (3d ed. 2018). Notice can be provided “by
personal service or otherwise.” Ct. Ch. R. 65(d) (emphasis added). Here, Bo received actual
notice of the Order to Show Cause with ample time to respond and appear. Due process
does not require more than that. See, e.g., Drywall Tapers & Pointers, Local 1974 v. Local
530, Operative Plasters & Cement Masons Int’l Ass’n, 889 F.2d 389, 396 (2d Cir. 1989)
(holding “Local 530 cannot claim that its due process rights were violated” where it “had
actual notice of the [civil] contempt proceedings”); SEC v. VTR, Inc., 410 F. Supp. 1309,
1314 (D.D.C. 1975) (finding non-party President of civil contemnor “received actual notice
of these proceedings” and therefore “the requirements of due process have been met”).
32
accounts, and the Cooperation Paragraph, which requires that the Zhongs cooperate with
the receiver’s efforts. These provisions establish general obligations, rather than directing
that the Company take particular actions by a specified date. Another factor is the Zhongs’
status as foreign nationals who may not have fully understood that failing to cause the
Company to comply with this court’s orders could place them in personal jeopardy
In my view, the court would have the authority to impose sanctions on the Zhongs
at this time. Instead, on the facts of this case, the court will issue a more specific order
directing the Zhongs to take the actions that the receiver has identified. This will give the
Zhongs one final opportunity to comply with this court’s orders and avoid the issuance of
bench warrants and the potential for coercive imprisonment. Because the receiver is
invoking this court’s jurisdiction under Section 3114, the receiver shall serve the order in
accordance with that statute, in addition to using the same methods of service used
previously.
3. Opportunity To Be Heard
To satisfy due process, a party facing contempt must receive an opportunity to be
heard “at a meaningful time and in a meaningful manner.”113 In a civil contempt
proceeding, “the charged party is entitled to . . . an impartial hearing[] and an opportunity
to present a defense.”114 “Neither a jury trial nor proof beyond a reasonable doubt is
113
Barry v. Barchi, 443 U.S. 55, 66 (1979) (internal quotation marks omitted)
(quoting Armstrong v. Manzo, 380 U.S. 545, 552 (1965)).
114
Nabkey v. Hoffius, 827 F. Supp. 450, 452 (W.D. Mich. 1993).
33
required.”115 Here, the Zhongs’ opportunity to brief and argue the receiver’s motion
satisfied their due process rights.
Nonetheless, I will entertain additional hearings. “In terms of procedural due
process, the Constitution sets a floor, not a ceiling.”116 If the Zhongs fail to comply with
this court’s more specific order, and if the receiver moves for the issuance of bench
warrants, then the Zhongs may appear and oppose that motion. If requested, I will hold an
evidentiary hearing at that time.117 That step is warranted because the receiver’s request for
a coercive sanction of imprisonment requires careful scrutiny.118 In addition, “[c]ontempts
involving out-of-court disobedience to complex injunctions,” such as the ones at issue here,
“often require elaborate and reliable factfinding.”119
115
Bagwell, 512 U.S. at 827.
116
Robinson v. Gov’t of the D.C., 234 F. Supp. 3d 14, 24 (D.D.C. 2017).
117
Cf. Simon v. Navellier Series Fund, 2000 WL 1597890, at *4 (Del. Ch. Oct. 19,
2000) (Strine, V.C.) (noting that for dispositive motions under Court of Chancery 12(b)
“the court has discretion to shape a process that is efficient so long as it affords the parties
a fair opportunity to take discovery and/or to have any relevant factual disputes resolved
after an evidentiary hearing if either is necessary to a fair determination of the motion”);
ASX Inv. Corp. v. Newton, 1994 WL 178147, at *2 (Del. Ch. May 3, 1994) (Allen, C.)
(suggesting desire to hold evidentiary hearing in connection with Court of Chancery Rule
11 sanctions “given the early stage in the proceedings at which the issue arose”).
118
See D.G.R. v. R.C., 2007 WL 5158162, at *1 (Del. Fam. Dec. 5, 2007) (“This
Court appreciates the severity of [imprisonment as a] sanction for civil contempt and
employs it only as a last resort.”); Watson v. Givens, 758 A.2d 510, 517 (Del. Fam. 1999)
(“The Court is mindful that with the authority to incarcerate comes the responsibility that
this authority should be used as a last resort and not a first resort to obtain compliance with
the Court’s order.”).
119
Bagwell, 512 U.S. at 833-34.
34
III. CONCLUSION
The receiver shall submit a form of order directing the Zhongs to take or cause the
Company to take specific actions to address the areas that the receiver has identified as
constituting violations of the court’s orders. The order shall give the Zhongs sixty days to
comply. Once entered, the receiver shall give the Zhongs notice of the order by using the
same methods that the receiver has used to date and by additionally serving a copy of the
order as contemplated by Section 3114(c).
If the Zhongs fail to comply, then the receiver may renew its application for an order
to show cause that would result in the issuance of bench warrants for the Zhongs’ arrest.
The Zhongs may oppose that application. If requested, the court will hold an evidentiary
hearing. In any event, the Zhongs will be able to purge the sanction of coercive
imprisonment at any time by complying with the court’s orders.
35