Gener8, LLC and Symbient Product Development, LLC v. Scott Castanon
This text of Gener8, LLC and Symbient Product Development, LLC v. Scott Castanon (Gener8, LLC and Symbient Product Development, LLC v. Scott Castanon) is published on Counsel Stack Legal Research, covering Court of Chancery of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
GENER8, LLC and SYMBIENT ) PRODUCT DEVELOPMENT, LLC, ) ) Plaintiffs, ) ) v. ) C.A. No. 2022-0426-LWW ) SCOTT CASTANON, ) ) Defendant. )
MEMORANDUM OPINION
Date Submitted: June 16, 2023 Date Decided: September 29, 2023
Jonathan M. Stemerman & Luke W. Mette, ARMSTRONG TEASDALE, LLP, Wilmington, Delaware; Donald W. Schroeder & Paul G. King, Jr., FOLEY & LARDNER LLP, Boston, Massachusetts; Maureen M. Stewart, FOLEY & LARDNER LLP, Tampa, Florida; Krista M. Cabrera & Mickle S. Jew, FOLEY & LARDNER LLP, San Diego, California; Counsel for Plaintiffs Gener8, LLC and Symbient Product Development, LLC
Kurt M. Heyman, Jamie L. Brown, Elizabeth A. DeFelice & Jenny Li, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Counsel for Defendant Scott Castanon
WILL, Vice Chancellor In February 2020, Scott Castanon sold Symbient Product Development,
LLC—the company he had founded—to Gener8, LLC for $14.4 million. As a
condition to the sale, Castanon agreed to restrictive covenants prohibiting him from
competing with Symbient and from soliciting its employees or customers for five
years.
Castanon’s employment with Symbient ended on May 21, 2021. He
immediately became involved in launching a company called Protoshop. Although
Protoshop was nominally started by Castanon’s stepson, Castanon was the
mastermind. Castanon secured office space, guaranteed equipment loans, and
provided the business’s startup capital. He messaged Symbient customers to
advertise “his” new venture. He encouraged former Symbient employees to join
Protoshop. And he advised Protoshop’s team on projects for former Symbient
clients.
Castanon does not seriously dispute these facts (other than a farce about
Protoshop’s funding being from a fictional rich uncle). To be sure, Castanon tried
to conceal his involvement—including by deleting electronic evidence. But he
acknowledges that he provided substantial assistance to Protoshop.
Castanon’s central defense is that Protoshop is not Symbient’s competitor.
This was disproven at trial. Symbient designs and fabricates prototype molds to
create product prototypes. According to its website, Protoshop also performs
1 prototype mold fabrication and offers design assistance services. It is no accident
that Protoshop’s website advertises with images taken directly from Symbient’s own
marketing materials. Protoshop is plainly targeting a slice of Symbient’s work.
Ultimately, judgment is entered for the plaintiffs on their breach of contract
claims. By forming a competing business and (at least indirectly) soliciting
Symbient customers and employees, Castanon violated his restrictive covenants and
harmed the plaintiffs. The plaintiffs also proved that Castanon spoliated evidence
and is in contempt of a court order barring him from working on Protoshop’s behalf.
Sanctions, including two adverse inferences, are issued as a result.
The plaintiffs’ entitlement to a remedy for their harms, however, is limited.
Castanon does not draw a salary from or hold equity interests in Protoshop. No
damages from lost customer contracts were shown at trial. The plaintiffs proved
only that they have incurred costs to hire and train new employees after losing staff
to Protoshop. Money damages to address these out-of-pocket losses are awarded,
plus pre-judgment interest, attorneys’ fees, and injunctive relief to prevent future
breaches.
2 I. FACTUAL BACKGROUND
Unless otherwise noted, the following facts were stipulated to by the parties
or proven by a preponderance of the evidence at trial.1 Trial was held over three
days during which seven fact and two expert witnesses testified live.2 The trial
record includes 742 exhibits and 17 deposition transcripts.3
A. Symbient’s Business4
Scott Castanon founded Symbient Product Development, LLC in or around
2004.5 He served as Symbient’s Chief Executive Officer until the spring of 2021,
and his employment ended on May 21, 2021.6 Symbient is a contract design
engineering and manufacturing company “focused on development of medical/life
science consumables” and prototyping.7 It is a California limited liability company
with its principal place of business in Sunnyvale, California.8
1 Joint Pre-trial Stipulation and Order (Dkt. 119) (“PTO”). To the extent that conflicting evidence was presented, I have weighed it and made findings of fact accordingly. 2 Dkts. 135-38. Trial testimony is cited as “[Name] Tr.” 3 See Dkt. 135. Facts drawn from exhibits jointly submitted by the parties at trial are referred to according to the numbers provided on the parties’ joint exhibit list and cited as “JX__” unless otherwise defined. Deposition transcripts are cited as “[Name] Dep.” 4 After its acquisition, Symbient operates as part of Gener8, LLC. At times, I refer to Symbient and Gener8 interchangeably. 5 PTO ¶ II.B.22. 6 Id. ¶¶ II.A.4, II.B.39. 7 JX 17 at 4; see Castanon Tr. 238-39; Ceriani Tr. 465-67; Helm Tr. 82-83. 8 PTO ¶ II.A.2.
3 Symbient uses prototype molds to create product prototypes, offering
so-called “rapid prototyping.”9 Customers come to Symbient with initial product
designs ranging from napkin scrawls to three-dimensional computer-assisted design
(CAD) models.10 Symbient’s role is to efficiently design and build a prototype
version of the imagined products.11
Symbient follows a five-phase development process to transform product
designs into prototype product molds and prototypes to be transitioned into
production and manufacturing.12 The five phases are:
• Phase 1: Defining product requirements; developing concepts for potential design solutions; and analyzing and presenting concepts to determine which concept best meets product requirements.13
• Phase 2: Modeling the selected concept; fabricating and testing a rapid prototype against product requirements; and iterating the design.14
9 JX 17 at 2; Helm Tr. 79-81; Castanon Tr. 242. 10 Ceriani Tr. 531-32; see also id. at 465; Helm Tr. 75, 121; JX 129 (Symbient working with a customer on the design of a product). 11 Helm Tr. 79 (“It’s the process of quickly fabricating or manufacturing prototypes . . . . And so you are using methods that, in the rapid prototyping phase, that are a little bit lower fidelity, but get you a prototype quickly that gets you something testable.”); Castanon Tr. 242 (“[Speed is] the most important thing to [device design customers]. They’re coming to us specifically because of our ability to get products to market faster than anyone else.”). 12 JX 73 at 3-4; see also JX 17 at 6; Ceriani Tr. 465-67, 531-33; Helm Tr. 74-78, 121. 13 JX 73 at 3-4; see also JX 17 at 6. 14 JX 73 at 3-4; see also JX 17 at 6.
4 • Phase 3: Fabricating prototype tooling; molding and assembling functional devices; and iterating the mold and assembly until product requirements are met. 15
• Phase 4: Performing design verification testing to confirm that product requirements are met across a statistically significant sample.16
• Phase 5: If requested by the customer, transferring the prototype molds to a contract manufacturer to create production molds, and supporting patent and regulatory approval processes.17
The transformation from an idea to a prototype design to a negative prototype
mold design to an injection molded prototype is not always linear; each phase can
affect others.18 Phases 2 and 3, for instance, overlap to include so-called
Free access — add to your briefcase to read the full text and ask questions with AI
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
GENER8, LLC and SYMBIENT ) PRODUCT DEVELOPMENT, LLC, ) ) Plaintiffs, ) ) v. ) C.A. No. 2022-0426-LWW ) SCOTT CASTANON, ) ) Defendant. )
MEMORANDUM OPINION
Date Submitted: June 16, 2023 Date Decided: September 29, 2023
Jonathan M. Stemerman & Luke W. Mette, ARMSTRONG TEASDALE, LLP, Wilmington, Delaware; Donald W. Schroeder & Paul G. King, Jr., FOLEY & LARDNER LLP, Boston, Massachusetts; Maureen M. Stewart, FOLEY & LARDNER LLP, Tampa, Florida; Krista M. Cabrera & Mickle S. Jew, FOLEY & LARDNER LLP, San Diego, California; Counsel for Plaintiffs Gener8, LLC and Symbient Product Development, LLC
Kurt M. Heyman, Jamie L. Brown, Elizabeth A. DeFelice & Jenny Li, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Counsel for Defendant Scott Castanon
WILL, Vice Chancellor In February 2020, Scott Castanon sold Symbient Product Development,
LLC—the company he had founded—to Gener8, LLC for $14.4 million. As a
condition to the sale, Castanon agreed to restrictive covenants prohibiting him from
competing with Symbient and from soliciting its employees or customers for five
years.
Castanon’s employment with Symbient ended on May 21, 2021. He
immediately became involved in launching a company called Protoshop. Although
Protoshop was nominally started by Castanon’s stepson, Castanon was the
mastermind. Castanon secured office space, guaranteed equipment loans, and
provided the business’s startup capital. He messaged Symbient customers to
advertise “his” new venture. He encouraged former Symbient employees to join
Protoshop. And he advised Protoshop’s team on projects for former Symbient
clients.
Castanon does not seriously dispute these facts (other than a farce about
Protoshop’s funding being from a fictional rich uncle). To be sure, Castanon tried
to conceal his involvement—including by deleting electronic evidence. But he
acknowledges that he provided substantial assistance to Protoshop.
Castanon’s central defense is that Protoshop is not Symbient’s competitor.
This was disproven at trial. Symbient designs and fabricates prototype molds to
create product prototypes. According to its website, Protoshop also performs
1 prototype mold fabrication and offers design assistance services. It is no accident
that Protoshop’s website advertises with images taken directly from Symbient’s own
marketing materials. Protoshop is plainly targeting a slice of Symbient’s work.
Ultimately, judgment is entered for the plaintiffs on their breach of contract
claims. By forming a competing business and (at least indirectly) soliciting
Symbient customers and employees, Castanon violated his restrictive covenants and
harmed the plaintiffs. The plaintiffs also proved that Castanon spoliated evidence
and is in contempt of a court order barring him from working on Protoshop’s behalf.
Sanctions, including two adverse inferences, are issued as a result.
The plaintiffs’ entitlement to a remedy for their harms, however, is limited.
Castanon does not draw a salary from or hold equity interests in Protoshop. No
damages from lost customer contracts were shown at trial. The plaintiffs proved
only that they have incurred costs to hire and train new employees after losing staff
to Protoshop. Money damages to address these out-of-pocket losses are awarded,
plus pre-judgment interest, attorneys’ fees, and injunctive relief to prevent future
breaches.
2 I. FACTUAL BACKGROUND
Unless otherwise noted, the following facts were stipulated to by the parties
or proven by a preponderance of the evidence at trial.1 Trial was held over three
days during which seven fact and two expert witnesses testified live.2 The trial
record includes 742 exhibits and 17 deposition transcripts.3
A. Symbient’s Business4
Scott Castanon founded Symbient Product Development, LLC in or around
2004.5 He served as Symbient’s Chief Executive Officer until the spring of 2021,
and his employment ended on May 21, 2021.6 Symbient is a contract design
engineering and manufacturing company “focused on development of medical/life
science consumables” and prototyping.7 It is a California limited liability company
with its principal place of business in Sunnyvale, California.8
1 Joint Pre-trial Stipulation and Order (Dkt. 119) (“PTO”). To the extent that conflicting evidence was presented, I have weighed it and made findings of fact accordingly. 2 Dkts. 135-38. Trial testimony is cited as “[Name] Tr.” 3 See Dkt. 135. Facts drawn from exhibits jointly submitted by the parties at trial are referred to according to the numbers provided on the parties’ joint exhibit list and cited as “JX__” unless otherwise defined. Deposition transcripts are cited as “[Name] Dep.” 4 After its acquisition, Symbient operates as part of Gener8, LLC. At times, I refer to Symbient and Gener8 interchangeably. 5 PTO ¶ II.B.22. 6 Id. ¶¶ II.A.4, II.B.39. 7 JX 17 at 4; see Castanon Tr. 238-39; Ceriani Tr. 465-67; Helm Tr. 82-83. 8 PTO ¶ II.A.2.
3 Symbient uses prototype molds to create product prototypes, offering
so-called “rapid prototyping.”9 Customers come to Symbient with initial product
designs ranging from napkin scrawls to three-dimensional computer-assisted design
(CAD) models.10 Symbient’s role is to efficiently design and build a prototype
version of the imagined products.11
Symbient follows a five-phase development process to transform product
designs into prototype product molds and prototypes to be transitioned into
production and manufacturing.12 The five phases are:
• Phase 1: Defining product requirements; developing concepts for potential design solutions; and analyzing and presenting concepts to determine which concept best meets product requirements.13
• Phase 2: Modeling the selected concept; fabricating and testing a rapid prototype against product requirements; and iterating the design.14
9 JX 17 at 2; Helm Tr. 79-81; Castanon Tr. 242. 10 Ceriani Tr. 531-32; see also id. at 465; Helm Tr. 75, 121; JX 129 (Symbient working with a customer on the design of a product). 11 Helm Tr. 79 (“It’s the process of quickly fabricating or manufacturing prototypes . . . . And so you are using methods that, in the rapid prototyping phase, that are a little bit lower fidelity, but get you a prototype quickly that gets you something testable.”); Castanon Tr. 242 (“[Speed is] the most important thing to [device design customers]. They’re coming to us specifically because of our ability to get products to market faster than anyone else.”). 12 JX 73 at 3-4; see also JX 17 at 6; Ceriani Tr. 465-67, 531-33; Helm Tr. 74-78, 121. 13 JX 73 at 3-4; see also JX 17 at 6. 14 JX 73 at 3-4; see also JX 17 at 6.
4 • Phase 3: Fabricating prototype tooling; molding and assembling functional devices; and iterating the mold and assembly until product requirements are met. 15
• Phase 4: Performing design verification testing to confirm that product requirements are met across a statistically significant sample.16
• Phase 5: If requested by the customer, transferring the prototype molds to a contract manufacturer to create production molds, and supporting patent and regulatory approval processes.17
The transformation from an idea to a prototype design to a negative prototype
mold design to an injection molded prototype is not always linear; each phase can
affect others.18 Phases 2 and 3, for instance, overlap to include so-called
“moldability review.”19 After the product design is finalized, Symbient ensures that
it is “moldable.”20 Often, “moldability review” results in changes to the product
design.21
15 JX 73 at 3-4; see also JX 17 at 6. 16 JX 73 at 3-4; see also JX 17 at 6. 17 JX 73 at 3-4; see also JX 17 at 6. 18 See Helm Tr. 78, 140; Ceriani Tr. 472, 533. 19 Helm Tr. 140; Ceriani Tr. 472. 20 Ceriani Tr. 472; see also id. at 473, 533, 538-39; Helm Tr. 140. 21 Ceriani Tr. 473-74.
5 The focus of Symbient’s business is on the full development cycle with a
particular emphasis on Phases 1 and 2—the most profitable phases.22 Many
Symbient customers take an “off-ramp” after the early design stages rather than
complete the cycle.23 Such customers find another company to create prototype
molds and fabricate prototypes.24
A relatively smaller group of customers come to Symbient by way of an
“on-ramp” later in the development cycle.25 If customers have a design prepared,
they might ask Symbient to create a prototype mold and use injection molding to
fabricate a prototype.26 Symbient avoids these “molding-only” or “standalone
prototype molding” jobs.27 They are lower margin and diminish Symbient’s
22 See Helm Tr. 72; Jurkiewicz Tr. 694-95; Ceriani Tr. 458-59, 471 (“My understanding is that the reason that we didn’t take on molding-only jobs . . . is that there was very little profit, if any, and the big money was on the first two phases.”); Castanon Tr. 239 (“[Symbient] was first and foremost an engineering firm, and all the other services supported that.”); see also JX 122 (estimating $1.3 million in annual revenue from “prototype fabrication services”); JX 44 at 11 (estimating total revenue of $6.8 million in 2019). 23 Helm Tr. 76; see also Ceriani Tr. 466; JX 129 at 1 (example of customer considering an off-ramp). 24 See, e.g., JX 129 at 1 (customer “hoping to send out a design sometime next week to get some rapid prototype injection molding done” at another company). 25 See Helm Tr. 121-22. 26 See JX 23; JX 38 at 1; JX 13; JX 26; JX 214; JX 120; Helm Tr. 75. “Molding-only” projects skip Phases 1 and 2 of Symbient’s development cycle. Ceriani Tr. 473. 27 Helm Tr. 119; see also JX 38 at 1 (explaining that Symbient’s “general rule is to only fabricate parts that [it] designed”); Castanon Tr. 240; Ceriani Tr. 470; JX 23 at 2; JX 13 at 3 (“As a general rule, [Symbient] only fabricate prototypes that we designed, as we are not so much in the fabrication business . . . as we are in the product design/development 6 prototype molding resources for customers needing the full development cycle.28
Symbient often outsources “molding-only” jobs to other companies.29 To facilitate
referrals, Symbient keeps a list of “molding partners” that (unlike Symbient) are not
design-focused.30
Symbient’s consideration of a customer’s design intent gives it a competitive
advantage over molding-only companies.31 Symbient offers a fully integrated
process, helping customers create prototypes from little more than an idea.32
business.”); JX 214 at 1 (“[Symbient] [doesn’t] take molding jobs unless we have developed the prototype. We are a development/engineering house with small manufacturing capabilities for the customers we have developed a product for.”); JX 120; JX 365. 28 See Helm Tr. 119; Castanon Tr. 240; Ceriani Tr. 470-71; JX 88 at 1 (“[W]e [Symbient] typically don’t take on projects that are tool [i.e., mold] fab and molding only. We don’t make any money on the shop; it’s there to service our engineering projects.”). 29 Helm Dep. 59, 62; JX 331 at 1(“[I]t is important to have one or two outside shops that could support us when we get backed up. We work with several machine shops here in the bay and we have a good working relationship with a couple of them . . . . [W]hile keeping the mold design and prototyping in house[.]”); JX 139; JX 365. Symbient also outsourced protype molding jobs when its projects became backlogged. See Helm Tr. 119, 144-45; Castanon Tr. 240; Ceriani Tr. 567-68. 30 JX 95; see Helm Dep. 67. 31 JX 129 at 1 (“Since we usually design the parts, design the mold and mold the parts, we understand the design intent so we design the mold accordingly.”); see Helm Tr. 152; Castanon Tr. 243, 266-67; JX 17 at 7 (boasting “accountability in design” and “[i]f we design it, we prove it with final molded assemblies”). 32 See Ceriani Tr. 532 (“The primary function [of Symbient] was to change – to come up with the design . . . . Symbient generates the CAD. Symbient does testing. Symbient figures out how to get it working, and then Symbient provides the CAD of that part that is then ready to go to fabricate a mold.”); Jurkiewicz Tr. 694-95 (“[Symbient is] an engineering services company that does design services and prototyping services, and part 7 Although Symbient avoids projects limited to Phase 3 prototype molding and
prototype fabrication, prototyping services remain central to Symbient’s business
and full development process.33 These prototype molding and fabrication services
are the “key[s] to the castle.”34 Without them, Symbient would be unable to rapidly
iterate prototype products to finetune a product design.35
B. Gener8’s Acquisition of Symbient
In the summer of 2019, Gener8 and Symbient began collaborating on
customer projects.36 Gener8 is a California limited liability company headquartered
in Sunnyvale, California.37 G8 Holdings, LLC, a Delaware limited liability
company, owns all of Gener8’s membership interests.38 The ultimate majority
of those prototyping services are manufacturing prototype molds and manufacturing prototype components.”). 33 See JX 17 at 2; Castanon Tr. 239 (“Q. What were Symbient’s core competencies? A. They were mostly engineering-focused. Such as helping the customer establish requirements, creating concepts, modeling designs, creating prototypes, testing, iterating, creating a prototype mold, design verification, assembly, process, design. And then transfer to manufacturing as a final step.”); Jurkiewicz Tr. 665-66 (“Q. Is mold design core to Symbient’s business? A. Yes. . . . Q. Is rapid prototype fabrication core to Symbient’s business? A. Yes.”). 34 Helm Tr. 129-30 (“There’s kind of a core part of the business, like food service, like prototype molding. That’s kind of the key to the castle, in a sense, because if you don’t offer that, then you’re not all that competitive.”). 35 See Helm Tr. 130. 36 PTO ¶ II.C.23. 37 Id. ¶ II.A.1. 38 Id. ¶ II.B.1.
8 owner of G8 Holdings is Sverica Capital Management Partners IV, which is
managed by Sverica Capital Management LP (“Sverica”), a Delaware limited
partnership.39 On February 20, 2020, Gener8 acquired Symbient pursuant to an
Equity Purchase Agreement (the “EPA”).40 The EPA was executed by and among
Gener8, Symbient, SPD Newco, Inc., and (for limited purposes) the Castanon
Family Trust, Castanon, and Randi Castanon.41 In exchange for selling his Symbient
interests, Castanon received $9,150,000 in cash and 2,932,961 “rollover units” in G8
Holdings valued at $5,250,000.42
C. The EPA’s Terms
Castanon agreed to several restrictive covenants in the EPA. The covenants
prevent Castanon from competing with Symbient’s business and from soliciting
Symbient and Gener8’s employees and customers. Castanon agreed that the
restrictions “constitute[d] a material inducement to [Gener8] to enter into th[e]
[EPA] and consummate the transactions contemplated by th[e] [EPA].”43
39 Id. ¶ II.B.2. 40 Id. ¶ II.C.24; JX 63 (“EPA”); see JX 71 at 1. 41 SPD Newco was an entity created and controlled by Castanon to effectuate the sale of Symbient, and the Castanon Family Trust was the sole stockholder of SPD Newco. See JX 63. Randi Castanon is Scott Castanon’s spouse. PTO ¶ II.A.3. For clarity, I will refer to Scott Castanon as “Castanon” and Randi Castanon by her full name. 42 As a technical matter, SPD Newco received the consideration. PTO ¶ II.C.25; EPA § 2.1. 43 EPA § 6.8(e).
9 Section 6.8(a) of the EPA is a non-compete provision. It prohibits Castanon
from “directly or indirectly . . . engag[ing] in or assist[ing] others in engaging in” a
“Restricted Business” in a defined “Territory” for a period of five years.44 It also
restricts him from having “an interest in any Person that engages directly or
indirectly in the Restricted Business in the Territory in any capacity,” including as
an “agent” or “consultant.”45 It further bars him from “intentionally interfer[ing] in
any material respect with the business relationships (whether formed prior to or after
the date of [the EPA]) between [Symbient] and customers or suppliers of
[Symbient].”46 “Restricted Business” is defined as “contract design engineering and
44 Id. § 6.8(a). The full text of the provision is: For a period of five (5) years commencing on the Closing Date (the “Restricted Period”), neither of the Seller [SPD Newco], the Stockholder [the Castanon Family Trust] or Castanon shall, and none of them shall permit any of their Affiliates to, directly or indirectly, (i) engage in or assist others in engaging in the Restricted Business in the Territory; (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in the Territory in any capacity, including as a partner, shareholder, member, employee, principal, agent, trustee or consultant; or (iii) intentionally interfere in any material respect with the business relationships (whether formed prior to or after the date of this Agreement) between the Company and customers or suppliers of the Company. The “Company” is defined as Symbient. Id. at Preamble. 45 Id. § 6.8(a). 46 Id.
10 manufacturing of medical and life science devices.”47 The “Territory” is “the United
States of America.”48
The EPA contains non-solicit provisions that apply during a five-year
“Restricted Period.”49 Section 6.8(b) prohibits Castanon from “directly or indirectly,
“hir[ing] or solicit[ing] any employee of [Symbient] or encourag[ing] any such
employee who has left such employment,” with certain limitations.50 Section 6.8(c)
prohibits Castanon from “directly or indirectly, solicit[ing] or entic[ing], or
attempt[ing] to solicit or entice, any clients or customers of [Symbient] or potential
47 Id. § 10.1(a). The EPA also provides: “For avoidance of doubt, ‘Restricted Business’ shall not include any business which provides contract design engineering and manufacturing services solely with respect to products other than medical and life science devices.” Id. 48 Id. “Restricted Period” is defined as the “period of five (5) years commencing on the Closing 49
Date.” Id. § 6.8 (a). 50 Id. § 6.8(b). The full text of the provision is: During the Restricted Period, neither of Seller [SPD Newco], Stockholder [the Castanon Family Trust] or Castanon shall, and none of them shall permit any of their Affiliates to, directly or indirectly, hire or solicit any employee of the Company or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees; provided, that nothing in this Section 6.8 shall prevent Seller, Stockholder, Castanon or any of their Affiliates from hiring (i) any employee whose employment has been terminated by the Company or Purchaser or (ii) after one hundred eighty (180) days from the date of termination of employment, any employee whose employment has been terminated by the employee. 11 clients or customers of [Symbient] for purposes of diverting their business or
services from [Symbient].”51
Section 9.2 of the EPA states that Castanon will be personally liable for a
breach of the restrictive covenants in the EPA or “any ancillary agreement.”52
D. The Operating Agreement
Under Section 7.1(i) of the EPA, Castanon, through SPD Newco, was also
required to enter into an operating agreement with Gener8’s parent company, G8
Holdings.53 Because Castanon received units in G8 Holdings, he signed the
Amended and Restated Operating Agreement of G8 Holdings LLC (the “Operating
51 Id. § 6.8(c). The full text of the provision is: During the Restricted Period, neither of Seller [SPD Newco], Stockholder [the Castanon Family Trust] or Castanon shall, and none of them shall permit any of their Affiliates to, directly or indirectly, solicit or entice, or attempt to solicit or entice, any clients or customers of the Company or potential clients or customers of the Company for purposes of diverting their business or services from the Company. 52 Id. § 9.2. The relevant provision provides that: [T]he Seller [SPD Newco], the Stockholder [the Castanon Family Trust], and the Trust Grantors [Castanon and Randi Castanon] shall jointly and severally indemnify [Gener8] and its Affiliates and . . . hold them harmless from and against any and all Losses incurred or suffered . . . resulting from, arising out of or related to any . . . breach of any covenant or agreement of [Symbient] or [SPD Newco], [the Castanon Family Trust] or Castanon contained in th[e] [EPA] or any ancillary agreement to which the Company or the Seller, Stockholder or Castanon are a party that are required to be performed by any of them . . . . 53 Id. § 7.1(i).
12 Agreement”) as a “Member.”54 In that capacity, Castanon was subject to an
additional non-compete covenant prohibiting him from “engag[ing] in or
possess[ing] interests in any such business that may be deemed to be in competition
with any Portfolio Company.”55 The “Portfolio Compan[ies]” are G8 Holdings’
“operating subsidiaries,” including Symbient and Gener8.56
The Operating Agreement gave Castanon the right to observe meetings of G8
Holdings’ board of the managers (the “Board”) and receive certain Board
materials.57 Castanon was obligated to “hold in confidence and trust and to act in a
fiduciary manner with respect to all information” given to him as a Board observer.58
E. Castanon’s Termination
After the transaction closed, Gener8 and Symbient worked to add
manufacturing capabilities to Symbient’s business.59 Doing so was part of Gener8’s
investment thesis for Symbient.60 In November 2020, Symbient drafted a
54 As a technical matter, SPD Newco received the G8 Holdings units, became a “Member,” and executed the Operating Agreement. Id. (requiring SPD Newco to execute the Operating Agreement); JX 61 (“Operating Agreement”); see JX 71 at 1. 55 Operating Agreement § 4.2. 56 Id. § 1.4; see PTO ¶ II.B.1. 57 Operating Agreement § 3.12(b). 58 Id. 59 See Helm Tr. 73; Castanon Tr. 244; Jurkiewicz Tr. 695; JX 90; JX 186. 60 JX 44 at 16-17.
13 Manufacturing Transition Quality Plan, which contemplated “turnkey design,
development, manufacturing and servicing solutions for final devices.”61
For a time post-closing, Castanon remained at the helm of Symbient and
managed its day-to-day operations.62 But in March 2021, Jerry Jurkiewicz joined
Gener8 as CEO; Castanon was President.63 On April 21, 2021, Jurkiewicz
terminated Castanon as President due to his distaste for Castanon’s management
style.64 Jurkiewicz hoped to find Castanon a different role within Symbient.65
Castanon took the news poorly and refused to discuss other job positions.66
His employment at Symbient formally ended on May 21, 2021.67 Castanon was
terminated without cause under a provision in his employment agreement.68
61 JX 126 at 4. 62 PTO ¶ II.C.38; JX 64 (describing Castanon’s role as “President” of Symbient). 63 Finley Tr. 36. 64 Jurkiewicz Tr. 675-76 (“Q. And why did you remove him [Castanon] from that role? A. Culture. He abused employees. And it was a pervasive sentiment in my one-on-ones. It was described as a culture of fear in my first visit by two separate people.”); see also id. at 677; Finley Tr. 34-36; Ceriani Tr. 463 (testifying that Castanon “could be difficult as a manger” and that he would easily “get mad” at and “be impatient” with employees). 65 Jurkiewicz Tr. 675. 66 Id. at 677-79; Castanon Tr. 256-58. 67 PTO ¶ II.C.39. 68 JX 64 § 6(a). Castanon suspects that Sverica and Gener8 wanted to oust him from Symbient—even before the acquisition closed. Sverica and Gener8 had discussed and planned for the possibility that Castanon would not be part of Symbient in the future. See JX 58; JX 59; JXs 86-87. But there is no evidence (other than Castanon’s testimony about 14 F. The Unit Repurchase
After leaving Symbient, Castanon sought to liquidate his membership interest
in G8 Holdings.69 He told Jurkiewicz that he “want[ed] his money out” because
Gener8 was “going down the tubes.”70 Castanon and G8 Holdings negotiated a
repurchase of Castanon’s units over the ensuing months.
By May 18, 2021, Castanon sought to exercise his Board observer rights.71
He had not received Board materials for (or even notice of) a scheduled May 27
meeting.72 After Castanon reached out, the G8 Holdings Board discussed how to
“shield[] stuff from him.”73 G8 Holdings wanted to “excise anything that shows
growth” and any other information that Castanon “w[ould] use to justify an above-
his beliefs) that there was a premeditated plan to oust him. Finley and Jurkiewicz credibly testified otherwise. Finley Tr. 34-36; Jurkiewicz Tr. 674-75. Castanon Tr. 402-04; Jurkiewicz Tr. 677; see JX 161 at 2 (“[Scott] said he wanted his 69
money out.”). 70 JX 166 at 1; Jurkiewicz Tr. 677; see Castanon Tr. 403-04. 71 JX 192 at 4. 72 JX 201; see also JX 192. 73 JX 192 at 1.
15 cost share price.”74 The Board meeting agenda was “revise[d]” to “account for
[Castanon’s] attendance.”75 Castanon chose not to attend this Board meeting.76
On June 24, Castanon made an offer to sell his G8 Holdings units for
$9,440,000.77 G8 Holdings counteroffered at $5,250,000.78
On August 11, Castanon again sought to exercise his Board observer rights.79
He had received neither materials for nor notice of an August 20 meeting.80 The
Board “sanitize[d]” the materials given to Castanon and planned to meet without
him to discuss “sensitive topics.”81 G8 Holdings was especially concerned with
discussing the company’s planned M&A activity in Castanon’s presence.82
74 JX 196 at 1. 75 See JX 199 at 1 (“I don’t want to play this game more than once where we are modifying the Board agenda, but I do not think we can speak about the company’s standing and prospects openly with Scott on the call.”); see also JX 198; JX 200; JX 201 (“Please revise the agenda to account for Scott’s attendance this Thursday and distribute.”); JX 203. 76 Hylant Tr. 732. 77 JX 216 at 1. 78 JX 234 at 2-3. 79 JX 239 at 1. 80 See id.; JX 255. 81 JX 257; JX 253. 82 JX 250 (“We should probably reserve M&A for the exec session since we’re talking valuation.”); JX 251; JX 254; compare JX 255 (version of the board meeting slide deck circulated to Castanon), with JX 238 (an earlier draft). 16 Castanon attended the August Board meeting.83 The Board discussed a bleary
financial outlook for the company, including a downgraded EBITDA forecast.84
Afterward, one Board member told another that “if [Castanon] was resistant to a deal
before, [the information presented] just might push him to sell.”85
Three days after the Board meeting, on August 23, Castanon accepted the
$5,250,000 counteroffer.86 One Board member remarked: “I guess the last meeting
did the trick.”87 About a week later, on September 3, Gener8 executed a letter of
intent to acquire a medical device software development company.88 G8 Holdings
sought to “clear [Castanon] out ASAP before he change[d] his mind.”89
On October 8, Castanon and G8 Holdings entered into a Unit Repurchase
Agreement, through which G8 Holdings repurchased Castanon’s G8 Holdings units
for $5,250,000.90 Castanon ceased to hold any equity interests in G8 Holdings or
83 See JX 258. 84 See e.g., JX 261; JX 577 at 18. 85 JX 259. 86 JX 264. 87 JX 265. 88 JX 275. 89 Id. at 1; JX 276 (“When can we buy-back Scott’s shares?”; “Immediately.”); JXs 277- 79. 90 PTO ¶ II.C.61; JX 304.
17 Gener8.91 Thus, he was no longer bound by the Operating Agreement, which lacks
a survival clause. As to the EPA, Castanon “acknowledge[d], confirm[ed] and
agree[d] to abide by the obligations contained in the [EPA], including, without
limitation, those [restrictive covenants] set forth in Section 6.8.”92
G. Protoshop’s Formation
In July 2021—two months after Castanon’s departure from Symbient—a
company called Protoshop, Inc. was formed. Castanon’s stepson James “Jimmy”
Isaacs purports to be Protoshop’s founder.93 Isaacs was employed by Symbient from
October 2006 to October 2021 as a machinist.94 When Isaacs left Symbient in
October 2021, he held the position of machine shop supervisor.95
In June or July 2021, Isaacs asked Castanon for “help” with Protoshop.96
Castanon agreed.97 Castanon “provided substantial startup help.”98
91 PTO ¶ II.C.62. 92 JX 304 at 4. 93 Isaacs Tr. 170-71. Isaacs did not testify live at trial. His deposition testimony was played during trial as contemplated by the pre-trial order. See PTO ¶ V.D. 94 PTO ¶ II.B.5. 95 Id. 96 Isaacs Tr. 171-72; see Castanon Tr. 268. 97 Castanon Tr. 268. 98 Id. at 351.
18 At the same time, Isaacs approached Symbient’s Principal Engineer about
joining Protoshop and offered him a 25% stake in the business.99 He declined.
Isaacs next approached Dylann Ceriani, Symbient’s Director of Engineering, with
the same offer.100 Ceriani accepted, wanting to fulfill her longstanding desire to start
a business.101 Isaacs and Ceriani planned to own Protoshop 75%/25%.102 Ceriani
did not contribute any capital in exchange for her 25% stake.103 Nor did Isaacs for
his 75% stake.104
H. Financing from Isaacs’ “Rich Uncle”
Around June or July 2021, Protoshop received a $400,000 interest-free loan
for startup financing. Isaacs told Ceriani and others that the funds were from his
“rich uncle.”105 Ceriani was led to believe that an uncle named “Bob” was the
funding source.106 She even backed up Isaacs story when he told Symbient upon
99 Isaacs Tr. 183-85; see also PTO ¶ II.B.12. 100 Ceriani Tr. 483; Isaacs Tr. 185-86; see also PTO ¶ II.B.6. 101 Ceriani Tr. 483, 491- 92; see Isaacs Tr. 185-86. 102 Isaacs Tr. 199. 103 Ceriani Tr. 486. 104 Isaacs Tr. 199; see Ceriani Tr. 486-87. 105 Ceriani Tr. 486-87, 558; see Helm Tr. 109; Isaacs Tr. 178-82. To the extent Isaacs averred that he received less than $200,000 from his “rich uncle,” his testimony is neither credible nor supported by the broader record. Cf. Isaacs Tr. 180-81. 106 Ceriani Tr. 486-87, 560; id. at 558 (trying to recall if the uncle’s name was “Bob”); Ceriani Dep. 61 (“Bob is what comes to mind, but I don’t know if that’s right.”). 19 resigning that Castanon was not involved in Protoshop and that a “rich uncle” was
financing the business.107 Unbeknownst to Ceriani, Isaacs’ story was a lie.108
During his deposition, Isaacs refused to identify the uncle, citing “financial
privacy rights.”109 He would only say that the lender was his father’s brother and
that his “rich uncle’s” spouse had worked for an affiliate of Verisign Inc.110 This
testimony was easily disproven. The plaintiffs deposed Isaacs’ uncle (Robert
Isaacs), who confirmed that his spouse once worked for a Verisign affiliate.111 But
Robert Isaacs confirmed that he did not loan or gift money to Isaacs.112 Isaacs’ only
other uncle (James Isaacs) worked in the nuclear engineering field; neither he nor
his spouse were ever affiliated with Verisign.113
Who, then, could the mysterious “rich uncle” bankrolling Protoshop be? The
overwhelming weight of the evidence suggests that it was Castanon. Castanon has
107 Ceriani Dep. 61-69; Ceriani Tr. 485-86; see Isaacs Dep. 55, 85; JX 297; JX 542. 108 Ceriani did not know Isaacs was lying to her about the source of the financing. See Ceriani Tr. 560. Ceriani was the most credible witness at trial and seemed appropriately concerned about Isaacs’ apparent mistruths. 109 Isaacs Tr. 179-80. 110 Id. at 180-81. 111 Robert Isaacs Tr. 225 (testifying that Isaacs never asked him for money). For clarity, I refer to Jimmy Isaacs as “Isaacs” and to Robert Isaacs by his full name. Robert Isaacs did not testify live at trial. His deposition testimony was played during trial pursuant to the pre-trial order. See PTO ¶ V.D. 112 Robert Isaacs Tr. 224-25. 113 Id. at 229.
20 a close personal relationship with Isaacs and an expansive knowledge of the plastic
injection molding industry. He made over $9 million in cash from selling Symbient
just before Protoshop received startup funds in June 2021.114 After losing his senior
position at the company he founded, he had a motive to cause it harm. He also had
a motive to hide his involvement, given the restrictive covenants in the EPA.
I. Protoshop’s Launch
Castanon’s assistance to Protoshop was not only financial. He also agreed to
help with “[a]nything that [Isaacs] needed.”115 He (in his own words) “work[ed]
around the clock for months” to “get Protoshop started.”116
In July 2021, Castanon filed California corporate formation documents for
Protoshop.117 A Statement of Information filed with the Secretary of State of
California on July 15 identifies Isaacs as Protoshop’s Chief Executive Officer and
Director, and Ceriani as its Chief Financial Officer and Director.118 Protoshop’s
114 Castanon denied being the “rich uncle.” See Castanon Tr. 408-09, 416-17. He was not credible—in no small part since he was caught in other lies at trial. See infra Section II.A. Castanon admitted to later providing financing in April and May 2022. See infra Section I.L. This timing distinction seems self-serving since it could affect Castanon’s potential liability under the EPA if he improperly solicited Isaac and Ceriani to leave Symbient. 115 Castanon Tr. 268. 116 JX 686 at 171. 117 PTO ¶¶ II.C.40-41; JX 224. 118 PTO ¶ II.C.42; JX 224.
21 Articles of Incorporation and Statement of Information identify Castanon as its
“Agent” for service of process.119
In August 2021, Castanon scouted out and secured office space for
Protoshop—less than a mile away from Symbient’s office in Carlsbad, California.120
He signed and personally guaranteed the lease for Protoshop’s office.121 He made
Protoshop’s initial lease payment of $28,075.122
Castanon’s “substantial startup help”123 did not end there. He set up
Protoshop’s logo,124 website,125 email domain and email accounts,126 computer
systems,127 mold design software,128 office electricity,129 and health insurance
119 PTO ¶ II.C.42. 120 See PTO ¶¶ II.C.51-52; Helm Tr. 82, 88; JX 17 at 1; JX 242. 121 PTO ¶ II.C.52. 122 PTO ¶ II.C.53; JX 242. 123 Castanon Tr. 351; see also id. at 400 (“I’ve said many, many times, I helped them get started.”). 124 PTO ¶ II.C.44. 125 Id. ¶ II.C.48; Ceriani Tr. 506 (testifying that Castanon did most of the work on the website). 126 PTO ¶ II.C.46. 127 Id. ¶ II.C.54; JX 433; JX 475. 128 PTO ¶ II.C.47. 129 Id. ¶ II.C.49.
22 plans.130 He also ordered business equipment for Protoshop using his personal
funds, totaling over $160,000 dollars.131
Protoshop officially opened on November 1, 2021.132 It had five employees:
Isaacs, Ceriani, Jennifer Taylor (Symbient’s former Office Manager from September
2015 to October 2021), Randi Castanon, and Scout Ceriani (Ceriani’s daughter).133
Isaacs, Ceriani, and Taylor had resigned from their positions at Symbient just a few
weeks earlier.134 Ceriani, in particular, was viewed as a major loss to Symbient. She
was named a “Key Employee” in the EPA and considered a “unicorn” engineer given
her talent, diverse skill set, and customer skills.135
Symbient and Gener8 became suspicious. On October 7, their attorney
reached out to Castanon’s counsel, questioning whether Castanon was complying
with his non-compete and non-solicit obligations.136 Two days later, on October 9,
Castanon texted Ceriani: “They [plaintiffs] might sue me as they get frustrated with
130 Id. ¶ II.C.55. 131 Id. ¶ II.C.50; see JX 248; JX 271; JX 340; JXs 398-400, JX 407; JX 418; JXs 426-28; JX 433; JX 445; JX 466; JX 475; JX 705 at 191, 202, 248, 331; JX 707 at 30-31; JX 733; Castanon Tr. 364-65, 380. 132 Isaacs Tr. 189; Ceriani Tr. 499. 133 PTO ¶¶ II.B.7, 17; Ceriani Tr. 499; Castanon Tr. 348-49. 134 PTO ¶¶ II.C.58-59, 65. 135 EPA § 10.1(a); Helm Tr. 106; Ceriani Tr. 548; Jurkiewicz Tr. 703; cf. Castanon Tr. 434- 35. 136 PTO ¶ II.C.60.
23 employees leaving but I don’t think they would win.”137 On October 14, Castanon’s
counsel denied Castanon’s involvement and wrote that he was “not providing
financing to the new company.”138
J. Protoshop’s Business
Protoshop aims to provide rapid, high quality prototype molding services to
clients in the life science and medical industries.139 Protoshop’s work is focused on
a subset of the Symbient development cycle phases—principally, Phase 3.140 As
Ceriani put it, “Protoshop’s business model is to fabricate molds and to mold parts,
and that’s it.”141
As a first step in its workflow, Protoshop offers optional “[part] design
assistance.”142 This process is similar to Phases 1 and 2 of Symbient’s development
cycle.143 But unlike Symbient, which creates products of assembled parts, Protoshop
focuses on designing (and molding) unassembled parts.144
137 JX 309 at 2. 138 PTO ¶ II.C.64. 139 JX 547; JX 642; JX 645; JX 530 at 9 (showing Protoshop’s development process). 140 Helm Tr. 88, 121-22, 146; Ceriani Tr. 467-68, 471, 535-36; Isaacs Tr. 176. 141 Ceriani Tr. 502; see also Castanon Tr. 264-65, 267, 411; Isaacs Tr. 176; but see Helm Tr. 113 (noting that Protoshop also designs and manufactures molds). 142 JX 530 at 9. 143 See Helm Tr. 152-53. 144 Ceriani Tr. 502; Castanon Tr. 264; Isaacs Tr. 176.
24 Some Protoshop customers skip the design assistance step and come to
Protoshop with a prepared CAD model of the part.145 In that case, Protoshop
conducts a “moldability review” to confirm that the part can be molded.146 The
moldability review often results in changes to the mold design and, thus, the part
design.147 Protoshop views the moldability review as giving it an edge on “molding-
only” firms.148 It can make modifications faster and cheaper than most companies
that solely mold parts.149
K. Protoshop’s Customers
Protoshop had its first customer by mid-November 2021.150 To secure more,
Castanon promoted Protoshop on social media. In December, Castanon asked his
LinkedIn contacts—including former, current, and potential customers of
Symbient—to “follow Protoshop” on LinkedIn and visit Protoshop’s website.151 He
145 See Isaacs Tr. 176-77; Ceriani Tr. 496-97, 502-04, 535-36, 538. 146 Ceriani Tr. 472-74, 538-41; Castanon Tr. 264-65 (describing the “moldability report”); JX 530 at 5 (“Part moldability review to confirm parts are molding-ready.”); JX 347. 147 Ceriani Tr. 473-74. 148 Id. at. 502-04; JX 347. 149 Ceriani Tr. 502-04; JX 347. 150 Ceriani Tr. 500; Castanon Tr. 415-16. 151 JX 686 at 122-85; see Helm Tr. 99-101 (confirming these contacts included former, current, and potential customers of Symbient). 25 explained that Protoshop was started by “former Symbient workers” he was
“mentoring.”152
Castanon boasted to contacts that “[Protoshop’s] prototype molds are
fabricated quickly within a few days and part quality is far better than any service
out there,” encouraging his contacts to “refer anyone you know that might have a
need for prototype molding.”153 In one direct message, he wrote: “I sold my mold
making method along with Symbient but I came up with something better for
Protoshop.”154 In another, he said “I sold the molding method along with the
company so I had to create something new. I came up with a method . . . even better
than before.”155
In March 2022, Castanon sent out another blast message to his LinkedIn
contacts: “I just launched a new take on mold fabrication (ProtoShopInc) that means
prototype molds getting fabricated in 3‐5 days and mold iterations within 1‐2
days.”156 Castanon urged his contacts to reach out so that he could “give [them] a
glimpse at how we are solving some of the biggest headaches I dealt with all those
152 JX 686 at 122-85. 153 Id. 154 Id. at 130. 155 Id. at 170. 156 Id. at 2, 4-6, 9-121, 188.
26 years on the client side of the table.”157 One request for a referral said: “After I sold
[Symbient], I started Protoshop.”158
The comparisons to Symbient in advertising Protoshop did not end there.
Protoshop’s marketing materials and website featured images of parts and products
that Symbient had designed for its own customers.159
In time, Protoshop began to service a number of Symbient’s former, current,
and prospective clients. Common customers include ProteoWise Inc., Coagulo
Medical Technologies, Inc., and DeviceLab Inc.160
L. Castanon’s Additional Financial Support of Protoshop
In February 2022, Castanon personally guaranteed and signed approximately
$150,000 of equipment loans for two milling machines for Protoshop.161 In securing
the loan, Castanon told the lender: “I’ve taken over the shares in Protoshop for 75%
of the company that were owned by James Isaacs. It’s been officially changed with
the state. I was acting as advisor to the company but I’ve stepped in as president.”162
157 Id. 158 Id. at 117. 159 Compare JX 17 (images of a microfluidic diagnostics cartridge and DNA cartridges on Symbient’s marketing materials), with JX 530 at 11 (same images of microfluidic diagnostics and DNA cartridges on Protoshop’s business overview slide presentation); see also Helm Tr. 94-98. 160 See infra Section II.B.3. 161 PTO ¶ II.C.72. 162 JX 437.
27 Castanon had, in fact, filed a new Statement of Information with the State of
California identifying himself as Protoshop’s Chief Executive Officer and
Director.163 But Isaacs never transferred his 75% ownership to Castanon.164
Castanon’s financial support of Protoshop continued throughout the spring.
In March 2022, Castanon personally guaranteed another $90,000 equipment loan for
a molding machine.165 On April 14 and May 4, 2022, Castanon made two
interest-free loans ($50,000 and $100,000) to Protoshop.166 Castanon testified that
he made the loans to Isaacs.167 But Ceriani confirmed that the funds were deposited
in Protoshop’s accounts.168
M. Gener8’s Cease-and-Desist Letter
In March 2022, two other Symbient employees—Marcio Lupercio and
Deserie Ancheta—joined Protoshop.169 Lupercio had been with Symbient since
163 PTO ¶¶ II.C.70-71; JX 430. 164 See Isaacs Tr. 202-03; Castanon Tr. 271-73. 165 PTO ¶ II.C.73; JX 468. 166 PTO ¶ II.C.74; Castanon Tr. 274-76. 167 Castanon Tr. 337-38. 168 Ceriani Tr. 555. 169 PTO ¶¶ II.B.8-9.
28 March 2018, and Ancheta since August 2021.170 At the time of their departures,
Lupercio was Molding Supervisor and Ancheta was a machinist.171
On April 21, 2022, Gener8’s attorney sent Castanon’s counsel a
cease-and-desist letter.172 The letter stated that Castanon’s involvement with
Protoshop and solicitation of Gener8 employees and customers violated the
restrictive covenants in the EPA.173 The letter told Castanon that Gener8 was
contemplating litigation and to “preserve all property” in his possession, including
electronic information, about his “affiliation with Protoshop, its formation, and its
business.”174
N. This Litigation
On May 16, 2022, Symbient and Gener8 filed a Verified Complaint in this
court, along with a motion for expedited proceedings and a motion for a temporary
restraining order.175 The parties agreed to resolve the motions through a stipulated
170 Id. 171 Id. 172 Id. ¶ II.C.75; JX 514. 173 JX 514. 174 Id. at 8. 175 Dkts. 1-3. On October 3, 2022, the plaintiffs filed a similar action against Protoshop in California Superior Court. See Gener8, LLC v. Protoshop Inc., Case No. 37-2022- 00039503-CU-PT-CTL (Cal. Super. Ct.). 29 Consent Order, which I entered on May 27.176 Broadly speaking, the Consent Order
prohibited Castanon from assisting Protoshop while this action was pending. 177 On
October 20, the plaintiffs agreed to lift the Consent Order when they requested a
continuance of the trial.178
On October 10, the plaintiffs filed a Verified Amended Complaint (the
“Complaint”).179 The Complaint advances five claims against Castanon. Count I is
a claim for breach of the restrictive covenants in the EPA.180 Count II is a claim for
breach of the implied covenant of good faith and fair dealing.181 Counts III and IV
are claims for intentional interference with contractual relations and with prospective
economic advantage, respectively.182 And Count V is a claim for breach of fiduciary
duty as a former Gener8 employee and G8 Holdings Board observer.183
A three-day trial was held from January 30 to February 1, 2023.184 After trial,
the plaintiffs moved for sanctions based on spoliation and violations of the Consent
176 Consent Order (Dkt. 14). 177 Id. ¶ 2. 178 Dkt. 77. 179 Verified Am. Compl. (Dkt. 69) (“Compl.”); see Dkt. 63 (granting leave to amend). 180 Compl. ¶¶ 123-40. 181 Id. ¶¶ 141-45. 182 Id. ¶¶ 146-69. 183 Id. ¶¶ 170-76. 184 Dkts. 135-38.
30 Order.185 After post-trial briefing and argument, this matter was submitted for
decision as of June 16.186
II. LEGAL ANALYSIS
I begin my analysis by resolving the plaintiffs’ motion for sanctions. I
conclude that Castanon is in contempt of the Consent Order and recklessly spoliated
evidence. As remedies, I draw certain adverse inferences and award the plaintiffs
their reasonable fees and costs in connection with the sanctions motion.
I go on to evaluate the merits of the plaintiffs’ claims. The plaintiffs proved
that Castanon breached the non-compete and non-solicit provisions of the EPA
(Count I). They failed to prove their other claims (Counts II through V). The
plaintiffs are entitled to $104,356.00 in damages plus pre-judgment interest,
injunctive relief requiring Castanon to abide by his restrictive covenants, and their
reasonable attorneys’ fees and costs.
A. Sanctions
The plaintiffs moved for sanctions against Castanon under Court of Chancery
Rules 37(e) and 70(b).187 They argue that sanctions are appropriate to remedy
Castanon’s violation of the Consent Order and spoliation of evidence. Because
185 Pls.’ Mot. for Sanctions (Dkt. 145) (“Sanctions Mot.”); see also Dkts. 150, 153. 186 Dkts. 162, 164. Post-trial briefing included a sur-reply that I permitted Castanon to file. See Dkts. 159, 160. 187 Sanctions Mot. 3, 18; see Ct. Ch. R. 37(e); Ct. Ch. R. 70(b).
31 Castanon’s actions were egregious, at least reckless, and prejudicial, sanctions are
appropriate.
1. Contempt
“Court of Chancery Rule 70(b) authorizes the court to find a party in contempt
for the failure ‘to obey or to perform any order.’”188 “To establish civil contempt,
[the petitioning party] must demonstrate that the [alleged contemnors] violated an
order of this Court of which they had notice and by which they were bound.”189 The
petitioning party must “establish the contemptuous conduct by a preponderance of
the evidence.”190 The plaintiffs have met this burden.
The Consent Order was entered by the court on May 27, 2022 and remained
in effect until October 20, 2022.191 Castanon had notice of the Consent Order. It
was negotiated and signed by his counsel and expressly referenced Castanon’s
188 In re Aerojet Rocketdyne Hldgs, Inc., 2022 WL 2180240, at *21 (Del. Ch. June 16, 2022) (quoting Ct. Ch. R. 70(b)). 189 TR Invs., LLC v. Genger, 2009 WL 4696062, at *15 (Del. Ch. Dec. 9, 2009) (quoting Arbitrium v. Johnston, 1997 WL 589030, at *3 (Del. Ch. Sept. 17, 2009)) (alterations in original), aff’d, 26 A.3d 180 (Del. 2011). 190 TransPerfect Glob., Inc. v. Pincus, 278 A.3d 630, 644 (Del. 2022) (quoting Wilm. Fed’n of Tchrs. v. Howell, 374 A.2d 832, 838 (Del. 1977)) (cleaned up). 191 Dkts. 14, 76, 77.
32 agreement to its terms.192 Castanon also acknowledged his awareness of the Consent
Order at trial.193
The Consent Order prohibited Castanon from: (1) engaging in, assisting or
being “involved with providing any advice, consulting services, or any other services
of any kind” to Protoshop; and (2) providing “financial support to Protoshop” while
this action is pending.194 Castanon meaningfully violated these provisions by
actively overseeing and paying for work on Protoshop’s website.195
Just two days after the Consent Order was entered, Castanon provided detailed
feedback on 26 action items to Protoshop’s website developer.196 Castanon
continued for weeks to work with the developer on Protoshop’s website.197 On June
192 Dkts. 13, 14; Consent Order at Recitals, Signature Page. 193 Castanon Tr. 288. 194 Consent Order ¶¶ 2, 3. The plaintiffs also contend that Castanon violated the Consent Order’s prohibition on directly or indirectly taking steps to promote or advance the commercial or business interests of Protoshop. See id. ¶ 7. In support, they cite two LinkedIn communications. See JX 686 at 1, 2. Neither message suggests that Castanon meaningfully solicited customers or promoted Protoshop after the Consent Order was in place. See inTEAM Assocs., LLC v. Heartland Payment Sys., LLC, 2021 WL 5028364, at *8 (Del. Ch. Oct. 29, 2021) (explaining that, to support a contempt finding, a “violation must not be a mere technical one but must constitute a failure to obey the Court in a meaningful way”). 195 TransPerfect, 278 A.3d at 644 (“When an asserted violation of a court order is the basis for contempt, the party to be sanctioned must be bound by the order, have clear notice of it, and nevertheless violate it in a meaningful way.”). 196 JX 561 at 6. 197 Id.; JX 575.
33 14, 2022, Castanon paid a $2,000 invoice to the website developer out of his
“personal account.”198
Castanon knowingly violated the Consent Order through these actions. At
trial, Castanon initially suggested that he transitioned the website work to Ceriani.199
Perhaps recognizing that none of his email exchanges with the website developer so
much as copied Ceriani,200 Castanon changed tack. He then testified that he was
aware of the Consent Order’s requirements but believed that completing work on
Protoshop’s website was “the least of the two evils.”201 Indeed, his “higher morals”
compelled him to pay the website developer’s invoice.202
This is no excuse for Castanon’s conduct. If morality truly moved Castanon,
he could have sought a modification of the Consent Order.203 His testimony shows
that he understood the meaning of the Consent Order and decided to disobey it by
engaging in the very conduct it barred.204
198 JX 566. 199 Castanon Tr. 294. 200 JX 559; JX 561; JX 566; JX 575; Castanon Tr. 294-98. 201 Castanon Tr. 309. 202 Id. 203 Consent Order ¶ 8. 204 inTEAM Assocs., 2021 WL 5028364, at *8 (“This court has also noted in considering a motion for contempt that ‘the Court must be satisfied that there was an ‘element of willfulness or conscious disregard of a court order.’”). 34 2. Spoliation
“A party in litigation or who has reason to anticipate litigation has an
affirmative duty to preserve evidence that might be relevant to the issues in the
lawsuit.”205 Castanon likely could have anticipated litigation as early as October 7,
2021, when the plaintiffs’ counsel raised “concerns on the part of Gener8 about
[Castanon’s] compliance with his non-compete and related obligations.”206 By
October 9, there is no doubt that Castanon anticipated litigation—he told Ceriani
that he believed the plaintiffs “might sue” him.207 Castanon had, by this point,
already violated his restrictive covenants by putting the groundwork for Protoshop
in place, providing financing for Protoshop, and encouraging Isaacs and Ceriani to
leave Symbient.208 Castanon understood that the plaintiffs might accuse him of
being “in violation of the agreement” (i.e., the EPA) if he “[g]ave [Isaacs] the money
or [] was involved with the new company.”209
205 TR Invs., 2009 WL 4696062, at *17 (quoting Beard Rsch. v. Kates, 981 A.2d 1175, 1185 (Del. Ch. May 29, 2009)). 206 JX 314; see Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210, at *29 (Del. Ch. July 22, 2015) (finding that a defendant “had reason to anticipate litigation” “at the latest, when he began communicating with his attorney” “about possible allegations by [the plaintiff] that [the defendant] was breaching his noncompetition obligations”). 207 JX 309 at 2; see Castanon Tr. 346 (admitting that, as of October 9, he knew there was a “possibility” the plaintiffs might sue him). 208 See supra notes 117, 120-31 and accompanying text. See also infra notes 311, 314-19 and accompanying text. 209 JX 309 at 2.
35 Despite anticipating litigation in October 2021, Castanon failed to preserve
electronic evidence.210 He did not disable the auto-delete function on his email until
April 21, 2022.211 Worse, Castanon never stopped deleting his texts (even after
receiving Gener8’s cease and desist letter).212 Castanon produced just 12 individual
text messages—none of which were with Ceriani, Isaacs, or Taylor.213
Ceriani’s text messages, which were not produced until the month of trial, are
among the most damning evidence in the case. They prove that Castanon routinely
texted with her, Isaacs, Taylor, and Protoshop customers.214 The texts reveal that
Castanon coordinated the timing of Isaacs’ and Ceriani’s resignations from
Symbient.215 They also show that Castanon was working directly with certain
former Symbient customers.216
210 See JX 598 at 20-26; Castanon Tr. 315-17. 211 Castanon Tr. 315-17. The plaintiffs argue that Castanon continued to delete emails. They only identify a single gap in Castanon’s production after April 21, 2022: an email between Castanon and Coagulo that Coagulo produced and Castanon did not. JX 487. This could have been a production oversight and is not enough to find that Castanon spoliated emails post-April 21. See Castanon Tr. 284-85; JX 593 at 2-3. 212 Castanon Tr. 322-23. 213 JX 687. 214 See, e.g., JX 243; JX 246; JX 286; JX 292; JX 309; JX 374; JXs 434-35. 215 JX 296. 216 JXs 434-35.
36 Since Castanon deleted his texts, the record is devoid of messages sent
between Castanon and Isaacs (save one), or Castanon and Symbient customers, that
excluded Ceriani. In other words, unless Ceriani was a part of the text chain with
Castanon, relevant texts were (mostly) not produced. The prejudice to the plaintiffs
is obvious; the extent of the prejudice is unknown since the text messages are
irretrievably lost.
Castanon’s deletion of text messages was at least reckless. To warrant
dispositive sanctions, a party must “intentionally or recklessly destroy[] evidence,
when it knows that the item in question is relevant to a legal dispute or it was
otherwise under a legal duty to preserve the item.”217 “Delaware courts have defined
recklessness in the spoliation context as a conscious awareness of the risk that one’s
action or inaction may cause evidence to be despoiled.”218 “Intentional destruction
simply means that the spoliator acted ‘with purpose.’”219
217 Sears, Roebuck & Co. v. Midcap, 893 A.2d 542, 552 (Del. 2006); see Beard Rsch., 981 A.2d at 1192 (“[D]rawing an adverse inference is appropriate when an actor is under a duty to preserve evidence and takes part in the destruction of evidence while being consciously aware of a risk that he or she will cause or allow evidence to be spoiled by action or inaction . . . .”); Ct. Ch. R. 37(e)(2). 218 TR Invs., 2009 WL 4696062, at *17 (citing Beard Rsch., 981 A.2d at 1192). 219 Id.
37 This is not a situation where Castanon negligently forgot to turn off auto-
delete.220 Instead, he displayed blatant disregard for his duty to preserve evidence,
compounded by a lack of candor. During his November 2022 deposition, Castanon
maintained that he is “not a texter.”221 He said that he will “reply if somebody’s
texting [him],” but “prefer[s] to talk to people.”222 When Ceriani produced her text
messages two months later, Castanon was caught in a lie.223 Castanon is, in fact, a
prolific texter. He regularly texted about Protoshop—including with Ceriani, Isaacs,
Taylor, and Protoshop customers (such as DeviceLab).224 The vast majority of texts
produced by Ceriani were missing from Castanon’s meager production.225
Although Castanon’s failure to preserve email is less egregious, it was
likewise reckless. Castanon testified that he set up a Gmail account after leaving
Symbient and was unaware that deleted emails became permanently lost since his
220 That is not to say that no remedy would be appropriate if Castanon permitted the automatic deletion of messages. See Twitter, Inc. v. Musk, 2022 WL 5078278, at *5 (Del. Ch. Oct. 5, 2022). Rather, his state of mind goes beyond negligence. 221 Castanon Dep. 113. 222 Id.; see also Castanon Tr. 318 (repeating the same refrain). 223 See Pls.’ Opening Post-trial Br. (Dkt. 144) 15; compare JX 687 (all messages Castanon produced), with JX 705 (all messages Ceriani produced). 224 See, e.g., JX 243; JX 246; JX 286; JX 292; JX 309; JX 374; JXs 434-35. 225 JX 705 at 340-72; see also id. at 188-372 (Ceriani’s production post-dating October 9, 2021, including text messages received and sent by Castanon). Castanon only produced a single text with Isaacs. See Castanon Tr. 321. 38 business account had preserved them.226 Given his other false and self-serving
testimony on data preservation, I find it difficult to believe him. Moreover, he took
the affirmative act of deleting emails when he knew he was under a duty to preserve
evidence.
At trial, Castanon tried to use his spoliation to his advantage. For example,
when questioned on the first day of trial about the circumstances of Taylor’s
departure, Castanon testified unequivocally that he “didn’t talk to [Taylor] after [he]
left [Symbient] at all.”227 On the second day of trial, Castanon doubled down, saying
that he “was surprised” to discover Taylor working at Protoshop when he visited the
office.228 Yet, Castanon’s text messages—which were only available from Ceriani’s
last-minute production—show that Castanon was fully aware of Taylor’s plan to
resign from Symbient and join Protoshop.229 More strikingly, Castanon’s testimony
at trial (like at his deposition) was that he is not a “big texter” and, when he does
text, it’s “in reply to people that text” him to “play along.”230 Hundreds of texts
226 See Castanon Tr. 284-85; JX 593 ¶ 4; JX 598 at 20-26 (admitting in interrogatory responses that Castanon moved relevant emails to the “Trash” folder which were then “automatically” deleted after 30 days). Notably, Castanon’s interrogatory responses make no mention of texts. 227 Castanon Tr. 278. 228 Id. at 390. 229 JX 296 at 2. 230 Castanon Tr. 286, 318.
39 produced by Ceriani prove otherwise.231 Castanon’s shifty testimony suggests that
he deleted texts (and perhaps emails) to cover his tracks.
3. The Appropriate Sanctions
The plaintiffs seek sanctions against Castanon under Rule 70(b) for violations
of the Consent Order and under Rule 37(e) for spoliation. “Rule 70(b) supplies this
court with the power—and broad latitude—to remedy violations of its orders.”232
“A trial judge has broad discretion to impose sanctions for failure to abide by its
orders” provided the sanctions are “just and reasonable.”233 Rule 37(e) allows the
court to make an adverse inference or enter a default judgment “upon finding
prejudice to another party from loss of information" and when a “ party acted
recklessly or with the intent to deprive another party of the information’s use in the
litigation.”234
“Sanctions serve three functions: a remedial function, a punitive function, and
a deterrent function.”235 With these purposes in mind, the court considers the
offending party’s culpability, the complaining party’s prejudice, and the availability
231 See, e.g., JX 310; JX 454; JX 628; JX 630; JX 705. 232 TR Invs., 2009 WL 4696062, at *15; see Ct. Ch. R. 70(b). 233 Gallagher v. Long, 940 A.2d 945 (Del. 2007) (TABLE). 234 Ct. Ch. R. 37(e). 235 Beard Rsch., 981 A.2d at 1189.
40 of lesser sanctions to avoid unfairness while serving as a deterrent.236 The
recklessness of Castanon’s conduct and the resulting prejudice to the plaintiffs is
addressed above. That leaves the matter of tailoring an appropriate remedy “to the
degree of culpability of [Castanon] and the prejudice suffered by” the plaintiffs.237
I decline to grant a default judgment. “Entry of a judgment against the
spoliating party should be regarded as ‘a last resort.’”238 “[A] motion for such relief
should be ‘granted only if no other sanction would be more appropriate under the
circumstances.’”239 This extreme sanction is unwarranted here, after a full trial was
conducted where the plaintiffs were able to adduce substantial alternative evidence
to prove their case in chief.240
The lesser sanction of adverse inferences is, however, warranted for
Castanon’s spoliation. The Delaware Supreme Court has explained that:
236 Id. (“[T]he Court will consider the following factors in determining the appropriate sanctions: (1) the culpability or mental state of the party who destroyed the evidence; (2) the degree of prejudice suffered by the complaining party; and (3) the availability of lesser sanctions which would avoid any unfairness to the innocent party while, at the same time, serving as a sufficient penalty to deter the conduct in the future.”). 237 Id. at 1189-90. 238 Id. at 1190; see TR Invs., 2009 WL 4696062, at *19. 239 Beard Rsch., 981 A.2d at 1190; see TR Invs., 2009 WL 4696062, at *19. 240 Cf. BDO USA, LLP v. EverGlade Glob., Inc., 2023 WL 1371097, at *14 (Del. Super. Jan. 31, 2023) (awarding a default judgment where there was “no direct evidence” for the plaintiff’s case in chief and because “[t]o prove [their case], [plaintiff] should not have to rely on circumstantial evidence, which [wa]s all that [wa]s left”). 41 An adverse inference instruction is appropriate where a litigant intentionally or recklessly destroys evidence, when it knows that the item in question is relevant to a legal dispute or it was otherwise under a legal duty to preserve the item.241
That is the situation here. Castanon recklessly destroyed evidence. He then sought
to capitalize on his misconduct by providing false testimony at trial. Accordingly, I
draw limited adverse inferences that the lost information would support findings that
Castanon solicited Symbient employees and customers.242 The specific inferences
that I deem appropriately tailored to address Castanon’s culpability and the resulting
prejudice to the plaintiffs are noted in my analysis of the plaintiffs’ claims below.
As a sanction for contempt of the Consent Order, Castanon must pay the fees
and expenses incurred by the plaintiffs’ counsel in moving for sanctions.243 Doing
so will serve a remedial purpose: the plaintiffs will not be forced to bear the costs of
bringing Castanon’s contumacious behavior to light and will be given some
241 Midcap, 893 A.2d at 552. 242 See, e.g., Beard Rsch., 981 A.2d at 1192 (drawing an adverse inference where the defendant deleted information, replaced his hard drive, and failed to maintain the original despite receiving prior notice that the data could be discoverable); Triton Constr. Co., Inc. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *8 (Del. Ch. May 18, 2009) (drawing adverse inferences where the defendant deleted files on his work computer and failed to preserve data on a thumb drive and home computer containing relevant information), aff’d, 988 A.2d 938 (Del. 2010); Kan-Di-Ki , 2015 WL 4503210, at *28-30 (drawing “narrowly tailored [adverse] inferences” where the defendant failed to preserve text messages that could have contained evidence of his alleged breaches of restrictive covenants). 243 See infra note 244 and accompanying text.
42 recompense for his actions.244 This sanction is also appropriate due to Castanon’s
spoliation. “To impose monetary sanctions, this Court need only find that a party
had a duty to preserve evidence and breached that duty . . . .”245
B. Breach of Contract
The plaintiffs contend that Castanon breached the non-competition provisions
in the EPA and Operating Agreement and the non-solicitation provisions in the EPA.
As an initial matter, Castanon objects to the plaintiffs’ attempt to hold him liable for
breaching the Operating Agreement since no such claim is in the Complaint. His
objection is well placed.246
The Complaint advances a breach of contract claim based on the EPA alone.247
The plaintiffs aver that they may nonetheless pursue relief under the Operating
244 See Mitchell Lane Publ’rs, Inc. v. Rasemas, 2014 WL 4804792, at *3 (Del. Ch. Sept. 26, 2014) (“When dealing with alleged civil contempt, sanctions should only ‘be directed towards coercing compliance with the order being violated and remedying the injury suffered by other parties as a result of the contumacious behavior.’” (quoting Aveta Inc. v. Bengoa, 986 A.2d 1166, 1188 (Del. Ch. 2009))); see also Isr. Disc. Bank of N.Y. v. First State Depository Co., LLC, 2013 WL 2326875, at *28 (Del. Ch. May 29, 2013) (“An award of counsel fees is also a proper consideration for civil contempt.”) (cleaned up); Bruckel v. TAUC Hldgs., LLC, 2023 WL 4583575, at *14-16 (Del. Ch. July 17, 2023) (awarding attorneys’ fees as a sanction for the defendant’s contempt of a court order requiring the production of certain books and records); Aveta, 986 A.2d at 1188 (awarding attorneys’ fees where the defendant was found in contempt of a court order mandating arbitration). 245 Beard Rsch., 981 A.2d at 1194. 246 The plaintiffs have not moved to supplement the Complaint under Rule 15(d). 247 Am. Compl. ¶¶ 123-40.
43 Agreement as an “ancillary agreement” to the EPA.248 This argument is, however,
based on a tortured reading of the EPA, which does not expressly mention the
Operating Agreement.249 In any event, the plaintiffs waited until the eve of trial to
claim that Castanon breached the non-compete provision in the Operating
Agreement.250 Castanon lacked prior notice of this possibility. Tellingly, the
Amended Complaint addresses the EPA 44 times but does not mention the Operating
Agreement once.251 The plaintiffs’ attempt to raise violations of a separate
agreement with a different non-compete provision came too late.252 Thus, I only
consider whether Castanon breached the restrictive covenants in the EPA.
248 See PTO ¶ VI.2. 249 See EPA § 9.2 (addressing indemnification for breaches of “ancillary agreements”). The EPA does not expressly incorporate the Operating Agreement’s terms—or even mention the Operating Agreement. To invoke Section 9.2 in the first place, the plaintiffs would need to prove a breach of the Operating Agreement (assuming it is an “ancillary agreement” to the EPA). But they neglected to press a claim for breach of the Operating Agreement. 250 The plaintiffs first raised this theory in a draft pre-trial order on January 12, 2023. PTO ¶ VI.5. 251 Am. Compl. ¶¶ 7-8, 12, 26-29, 33-34, 37-40, 43-44, 82, 88, 101, 103, 114, 116, 119-20, 124-34, 139, 142-45, 151, 163. 252 See Zutrau v. Jansing, 2014 WL 6901461, at *7 (Del. Ch. Dec. 8, 2014) (“Pleadings are intended to provide fair notice to the opposing party of the legal and factual theories and claims to be litigated.”), aff’d, 123 A.3d 938 (Del. 2015). Had the plaintiffs moved to amend the Complaint under Rule 15(d), I would have denied their request because of the prejudice to Castanon. See Those Certain Underwriters at Lloyd’s, London v. Nat’l Installment Ins. Servs., Inc., 2008 WL 2133417, at *9 (Del. Ch. May 21, 2008) (denying a request to amend under Rule 15(a) where the “belated addition” of a claim “would cause undue prejudice” to the non-movant), aff’d, 962 A.2d 916 (Del. 2008). Castanon was deprived of the opportunity to answer and pursue discovery (including expert discovery) 44 The parties agree that Delaware law applies to the EPA, which contains a
Delaware choice of law provision.253 “Under Delaware law, the elements of a breach
of contract claim are: 1) a contractual obligation; 2) a breach of that obligation by
the defendant; and 3) a resulting damage to the plaintiff.”254 The plaintiffs bear the
burden of proving these elements “by a preponderance of the evidence.”255
“Delaware law adheres to the objective theory of contracts,” meaning that “a
contract’s construction should be that which would be understood by an objective,
reasonable third party.”256 “When interpreting a contract, [the] Court ‘will give
priority to the parties’ intentions as reflected in the four corners of the
related to a purported violation of the Operating Agreement. See PharmAthene, Inc. v. SIGA Techs., Inc., 2011 WL 6392906, at *2 (Del. Ch. Dec. 16, 2011) (“The general rule . . . that a party waives any argument it fails properly to raise shows deference to fundamental fairness and the common sense notion that, to defend a claim or oppose a defense, the adverse party deserves sufficient notice of the claim or defense in the first instance.”); Zhou v. Deng, 2022 WL 1024809, at *6 (Del. Ch. Apr. 6, 2022) (“Arguments that are not raised until pre-trial briefing or after may be deemed waived by the Court. By that time, the opposing party has already shaped his trial plans, and it is simply too late and unfair to expect him meaningfully to confront the arguments so close to (or after) trial.” (citing ABC Woodlands L.L.C. v. Schreppler, 2012 WL 3711085, at *3 (Del. Ch. Aug. 15, 2012))), aff’d, 287 A.3d 633 (Del. 2022). 253 Def.’s Pre-trial Br. (Dkt. 134) 41-42; Pls.’ Opening Pre-trial Br. (Dkt. 121) (“Pls.’ Pre- trial Br.”) 23; EPA § 10.8; see also Operating Agreement § 11.6 (applying Delaware law). The EPA also provides that “any claim” relating to the agreement would “be brought solely in [the] Delaware Court of Chancery.” EPA § 10.6(a). 254 H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 140 (Del. Ch. 2003). 255 Zimmerman v. Crothall, 62 A.3 676, 691 (Del. Ch. 2013). 256 Salamone v. Gorman, 106 A.3d 354, 367-68 (Del. 2014) (quoting Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010)). 45 agreement.’”257 The court must construe the contract “as a whole and . . . will give
each provision and term effect, so as not to render any part of the contract mere
surplusage.”258
With these principles in mind, I turn to the EPA provisions at issue.
1. Engaging in a Restricted Business
Section 6.8(a) of the EPA prohibits Castanon from “directly or indirectly”
“engag[ing] in” a “Restricted Business in the Territory” or “assist[ing] others in
engaging in the Restricted Business in the Territory” for five years.259 Castanon
does not challenge the enforceability of the restrictive covenant or the
reasonableness of its scope.260 The parties’ dispute centers on (1) whether Protoshop
is a “Restricted Business” and, if so, (2) whether Castanon was “directly or
indirectly” engaging in or assisting with it.
257 Salamone, 106 A.3d at 368 (quoting GMG Cap. Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012)). 258 Osborn, 991 A.2d at 1159 (quoting Kuhn Constr., Inc. v. Diamond State Port Corp., 2010 WL 779992, at *2 (Del. Mar. 8, 2010)). 259 EPA § 6.8(a). 260 Pls.’ Pre-trial Br. 30-32; Def.’s Pre-trial Br. 41 (“[T]he Restrictive Covenants in the EPA fall within the exception set forth in Cal. Bus. & Prof. Code § 16601, relating to the sale of a business.”); see id. at 43-44, 46 n.16; Def.’s Post-trial Br. (Dkt. 151) 19. 46 a. Whether Protoshop is a “Restricted Business”
The EPA defines “Restricted Business” to mean “contract design engineering
and manufacturing of medical and life science devices.”261 Castanon insists that
Protoshop does not fall within this definition because it neither design engineers nor
manufactures such devices.262 For the most part, his arguments reduce to nothing
more than “persistent definitional smoke bombs” that obfuscate both the nature of
Symbient’s and Protoshop’s businesses and the concept of “design engineering.”263
After clearing away the smoke, it is apparent that Protoshop contract design
engineers medical and life science devices. It is a Restricted Business.
i. Conjunctive or Disjunctive “And”
A threshold question is whether the word “and” in the phrase “contract design
engineering and manufacturing” is conjunctive or disjunctive.264 That is, must a
Restricted Business engage in both design engineering and manufacturing? Or can
261 EPA § 10.1(a). 262 Def.’s Post-trial Br. 20-22. The plaintiffs’ post-trial reply brief also asserts that Protoshop was a “manufacturer.” See Pls.’ Post-trial Reply Br. (Dkt. 155) 17-19. This argument is missing from their opening post-trial brief, amounting to a waiver. See In re IBP, Inc. S’holders Litig., 789 A.2d 14, 62 (Del. Ch. 2001). Regardless, the notion that Protoshop was a “manufacturer” because it fabricated prototype molds is inconsistent with the notion that Symbient did not engage in manufacturing pre-acquisition. 263 See Jurkiewicz Tr. 695. 264 EPA § 10.1(a).
47 a Restricted Business provide either design engineering or manufacturing services?
Castanon invokes the former approach while the plaintiffs take the latter.
“[A]lthough ‘and’ typically bears a conjunctive meaning, that presumption
can be overcome by context.”265 “[C]ourts interpret ‘and’ in the disjunctive sense to
prevent an absurd or unreasonable result, or to give effect to the parties’ intent and
reasonable expectations.”266 Here, a disjunctive interpretation of “and” is supported
by context and the absurdity that would result from a conjunctive reading.
At the time of its acquisition by Gener8, Symbient did not engage in contract
manufacturing.267 Construing “and” conjunctively would therefore exclude
Symbient from the scope of the EPA’s noncompete.268 It would have been illogical
265 Weinberg v. Waystar, Inc., 294 A.3d 1039, 1045 (Del. 2023); see also Peacock v. Lubbock Compress Co., 252 F.2d 892, 893 (5th Cir. 1958) (“[T]he word ‘and’ is not a word with a single meaning, for chameleonlike, it takes its color from its surroundings.”). 266 Weinberg, 294 A.3d at 1045 (rejecting a “joint” interpretation of “and” that would produce an “absurd or unreasonable result”); see, e.g., Slodov v. United States, 436 U.S. 238, 250 (1978) (construing “and” as used in Section 6672 of the Internal Revenue Code as disjunctive); Peacock, 252 F.2d at 895 (construing “and” disjunctively in the Fair Labor Standards Act). An example raised at trial highlights the point: “[I]f you asked me . . . what kind of fruit do you like? And I say, I like apples and bananas, you don’t infer that I like apples and bananas together. I like apples, or, separately, I like bananas.” Finley Tr. 28. 267 See supra notes 17, 33 and accompanying text. One can imagine an argument that the restrictive covenant is overbroad if it included services Symbient did not provide at the time of contracting. See Kodiak Bldg. P’rs, LLC v. Adams, 2022 WL 5240507, at *8 (Del. Ch. Oct. 6, 2022) (“In the context of a sale of a business, the acquirer has a legitimate economic interest with regard to the assets and information it acquired in the sale.”). No such argument was raised by either party. 268 See Finley Tr. 25-26; Hylant Tr. 715; cf. supra note 267 and accompanying text.
48 for Gener8 to define the term Restricted Business to exclude the very business it was
acquiring.
Further, when the EPA was being negotiated, the parties expected that
Symbient would achieve manufacturing capabilities in the future.269 Post-closing,
Symbient worked to add “contract manufacturing” as an additional, elective option
to its development process.270 When that process was complete, Symbient’s
customers could choose “contract design engineering” or “contract manufacturing”
or both. As such, it is reasonable that Gener8 bargained for a definition of Restricted
Business that included “design engineering” or “manufacturing.”
ii. “Design Engineering”
The next step is construing the meaning of “contract design engineering” in
the definition of Restricted Business.271 The word “contract” means contracting with
and performing services for third party clients.272 Protoshop undoubtedly provided
269 See supra note 60 and accompanying text. 270 See supra notes 59, 61 and accompanying text. 271 The word “contract” modifies both “design engineering” and “manufacturing.” See Facebook, Inc. v. Duguid, 141 S. Ct. 1163, 1169 (2021) (“Under conventional rules of grammar, ‘[w]hen there is a straightforward, parallel construction that involves all nouns or verbs in a series,’ a modifier at the end of the list ‘normally applies to the entire series.’” (quoting A. Scalia & B. Garner, Reading Law: The Interpretation of Legal Texts 147 (2012))); see also Pls.’ Post-trial Reply Br. 14-16; Def.’s Pre-trial Br. 44 n.15. 272 Pls.’ Opening Post-trial Br. 27; Pls.’ Post-trial Reply Br. 15; Def.’s Post-trial Br. 44- 45 n.19; see also Contract, Merriam-Webster, https://www.merriam-webster.com/ dictionary/contract (last visited Sept. 26, 2023) (defining “contract” as “to establish or undertake by contract,” “to hire by contract,” and “to purchase (goods, services, etc.) on a 49 contract services to its customers.273 Whether those services were “design
engineering” is less straightforward.
Although the parties advance different interpretations of the phrase “design
engineering,” neither argues that the phrase is ambiguous.274 “A contract is not
rendered ambiguous simply because the parties do not agree upon its proper
construction.”275 “Clear and unambiguous language . . . should be given its ordinary
and usual meaning.”276 “But where a word has attained the status of a term of art
contract basis”); see also Contract, Cambridge Dictionary, https://dictionary. cambridge.org/us/dictionary/english/contract (last visited Sept. 26, 2023) (defining “contract” as “to make a legal agreement with someone to do work or to have work done for you”). 273 See infra notes 281, 333-34 and accompanying text (noting that Protoshop performs part design and prototype molding services and offers these services to customers who are in the medical device and life sciences fields). 274 See, e.g., Pls.’ Pre-trial Br. 37 (“[A] Restricted Business includes a company that contracts with customers to engineer the design of their medical or life science devices, including molds and prototypes of those devices or components of devices.”); Def.’s Post-trial Br. 4 (“Trial proved Symbient is a contract design engineering firm specializing in the design and development of prototypes of disposable medical and life sciences devices: it designs and develops medical/life science devices (from the concept stage) through its engineers, whose billable hours constitute Symbient’s primary source of revenue.”); id. at 17 (“Trial proved that the definition of ‘Restricted Business’ is tied to Symbient, which is a contract design engineering firm specializing in medical and life sciences devices: it designs medical/life science devices (from the concept stage) through its engineers, whose billable hours constitute Symbient’s primary source of revenue.”). 275 Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1992). 276 Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006) (“Under well-settled case law, Delaware courts look to dictionaries for assistance in determining the plain meaning of terms which are not defined in a contract.”). 50 and is used in a technical context, the technical meaning is preferred over the
common or ordinary meaning.”277
As a general matter, the term “design” means “to create, fashion, execute, or
construct according to plan.”278 “Engineering” typically means “to lay out,
construct, or manage as an engineer.”279 More technically speaking, according to
the McGraw-Hill Dictionary of Scientific and Technical Terms, “design
engineering” is “[a] branch of engineering concerned with the creation of systems,
devices, and processes useful to and sought by society.”280
277 Viking Pump, Inc. v. Liberty Mut. Ins. Co., 2007 WL 1207107, at *13 (Del. Ch. Apr. 2, 2007) (citing Madison Ave. Leasehold, LLC v. Madison Bentley Assocs. LLC, 30 A.D.3d 1, 8 (N.Y. App. Div. 2006)). 278 Design, Merriam-Webster, https://www.merriam-webster.com/dictionary/design (last visited Sept. 26, 2023). 279 Engineer, Merriam-Webster, https://www.merriam-webster.com/dictionary/engineer (last visited Sept. 26, 2023). As a noun, “engineer” means “a person who is trained in or follows as a profession a branch of engineering.” Id. 280 Design engineering, McGraw-Hill Dictionary of Scientific & Technical Terms (5th ed., 1994). Engineering textbooks provide a similar description of design engineering. See Pharm. Prod. Dev., Inc. v. TVM Life Sci. Ventures VI, L.P., 2011 WL 549163, at *3 (Del. Ch. Feb. 16, 2011) (consulting textbooks to determine the “ordinary meaning” of an unambiguous contractual term). For example, one textbook describes design engineering as a “set of decision-making processes and activities used to determine the form of an object given the functions desired by the customer.” Rudolph J. Eggert, Engineering Design 2 (2005). Other professional journals and textbooks are in accord. See Clive L. Dym et al., Engineering Design Thinking, Teaching, and Learning, 94 J. Eng’g Educ. 103, 104 (2005) (“Engineering design is a systematic, intelligent process in which designers generate, evaluate, and specify concepts for devices, systems, or processes whose form and function achieve clients’ objectives or users’ needs while satisfying a specified set of constraints.”); Arvid R. Eide et al., Engineering Fundamentals and Problem Solving 79 (4th ed., 2002) (“Engineering design is a systematic process by which solutions to the needs 51 The trial record demonstrates that Protoshop provides such services.
Protoshop advertises its “optional” “[p]art design assistance,” touting that its
“engineers have extensive plastic part design experience over thousands of parts”
and stand “ready to help [customers] develop a part design that meets [their]
requirements.”281 Customers seeking part design assistance come to Protoshop with
an idea and “desired needs and specifications with constraints.” 282 Protoshop then
engages in part design and creates the accompanying mold and tangible plastic parts
that meet the customer’s specifications.
Some Protoshop customers skip the part design assistance step. But even
when a customer comes to Protoshop with an initial design in hand, Protoshop often
modifies it during a moldability review.283 Moldability review is an iterative
process: as the mold evolves, so does the part design, which affects the mold that, in
of humankind are obtained. . . . The design process is applied to problems (needs) of varying complexity.”). 281 JX 530 at 9; JX 645 at 2; JX 549 at 4 (“[W]e created Protoshop with the goal that we are going to provide plastic part design and material selection assistance to better ensure that our customers yield parts that are going to be successful in their application.”). 282 Criteria for Accrediting Engineering Programs, Accreditation Board for Engineering and Technology 4 (2019), https://www.abet.org/accreditation/accreditation- criteria/criteria-for-accrediting-engineering-programs-2020-2021/. 283 See JX 406 (Castanon: “Just once I’d like to see CAD models that don’t need changes.”); Ceriani Tr. 540-41. 52 turn, affects the part.284 Thus, mold design—including moldability review—is a
type of design engineering. The key difference between mold design and part design
assistance is that in the former case, the customer comes to Protoshop with more
developed specifications.
Castanon offered the testimony of Dr. Richard Anderson to refute this
conclusion. Anderson opined that “design engineering would be encompassed in
Phases 1 and 2” of Symbient’s five-phase development cycle.285 According to
Anderson, Protoshop did not provide design engineering because it only performed
Phase 3 tasks. But Anderson’s interpretation of “design engineering” is at odds with
the plain meaning of the phrase.286 Symbient’s process was just one possible
implementation of the design engineering process.287 Regardless, even under
284 JX 530 at 5 (“Mold iterations encouraged as the design evolves[.]”); id. at 9 (“Request rapid mold iterations as needed[.]”); JX 645 at 2 (“Rapid mold iterations”: “Our molds are intended to allow for quick iterations to part geometry, typically in just 1 day.”). 285 Anderson Tr. 855-58; see also JX 663 at 24 (stating that “without completing all of the deliverables and tasks completed from [Phases 1 and 2], one cannot be said to have performed Design Engineering”). 286 See supra note 280. Insofar as Anderson is testifying about contract interpretation, I give it no weight. See United Rentals, Inc. v. RAM Hldgs., Inc., 2007 WL 4465520, at *1 (Del. Ch. Dec. 13, 2007) (“This Court . . . has made it unmistakably clear that it is improper for witnesses to opine on legal issues governed by Delaware law.”). Anderson’s testimony must also be viewed in the context of his longstanding relationship with Castanon. The two are co-inventors on a medical device patent. Anderson Tr. 870-71. 287 See, e.g., Clive L. Dym & Patrick Little, Engineering Design: A Project-Based Introduction 26 (John Wiley & Sons 2d ed. 2004). 53 Anderson’s interpretation, Protoshop engages in design engineering when it advises
clients on changes to their CAD models.288
iii. “Medical and Life Science Devices”
The phrase “medical and life science devices” is the final part of the Restricted
Business definition.289 “Medical” means “of, relating to, or concerned with
physicians or the practice of medicine.”290 “Life sciences” means “a branch of
science (such as biology, medicine, and sometimes anthropology or sociology) that
deals with living organisms and life processes.”291 It is undisputed that Protoshop
288 See Ceriani Tr. 473, 529-30, 539-41. At trial, Castanon testified that mold design and moldability review were not design engineering because “the responsibility for the design changes stays with the customer.” Castanon Tr. 264-65; see also Ceriani Tr. 472. The weight of the evidence, however, shows that Protoshop controlled mold design, which affected part design. E.g., JX 663 at 29 (“Mold design review feedback falls into two categories: 1) changes that are mandatory in order to proceed with mold fabrication; and 2) changes that are optional, but which are recommended to reduce the risk of molding defects.”). Part and mold design generally changed during moldability review. Ceriani Tr. 473-74; JX 406 at 2. 289 EPA § 10.1(a). 290 Medical, Merriam-Webster, https://www.merriam-webster.com/dictionary/medical (last visited Sept. 26, 2023); see also Medical, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english/medical (last visited Sept. 26, 2023) (defining “medical” as “related to the treatment of illness and injuries”). 291 Life science, Merriam-Webster, https://www.merriam-webster.com/dictionary/ life%20sciences (last visited Sept. 26, 2023); see also Life science, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english /life-science?q=life+sciences (last visited Sept. 26, 2023) (defining “life science” as “one of the types of science that deal with the structure and behavior of living things, such as botany, zoology, biochemistry, and anthropology”). 54 worked with medical and life science customers.292 Finally, a “device” is “a piece
of equipment or a mechanism designed to serve a special purpose or perform a
special function.”293 Prototype parts and prototype molds fall within that definition.
Anderson testified that the reference to “medical devices” in the definition of
Restricted Business refers to “finished medical devices” as defined by the Food and
Drug Administration (FDA).294 He opined that “finished medical devices” do not
include parts of devices, molds, or prototypes.295 But there is no evidence that the
EPA incorporates FDA regulatory definitions. The FDA is unmentioned in the
EPA.296 Moreover, according to Anderson, the FDA also does not define “life
sciences devices” or regulate them.297
292 See JX 530 at 3, 11; infra notes 334, 341 and accompanying text. 293 Device, Merriam-Webster, https://www.merriamwebster.com/dictionary/device (last visited Sept. 26, 2023); see also Device, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english/device (last visited Sept. 26, 2023) (defining “device” as “an object or machine that has been invented for a particular purpose”). 294 JX 663 at 13; see also JX 631; Anderson Tr. 827-28. 295 JX 663 at 12-13; Anderson Tr. 836, 883-84. Anderson acknowledged that his interpretation of “medical device” would mean that Restricted Business excludes Symbient’s business at the time of the acquisition when it did not make finished medical devices. Anderson Tr. 886-88. Adopting Anderson’s interpretation would therefore render the definition of Restricted Business absurd. See supra notes 267-69 and accompanying text. 296 Anderson Tr. 883-84. 297 Id. at 884.
55 b. Whether Castanon “Directly or Indirectly” Engaged in or Assisted With Protoshop’s Business
The evidence of Castanon’s direct and indirect involvement in Protoshop is
overwhelming. Castanon admitted that he gave “substantial” startup assistance to
Protoshop.298 He filed Protoshop’s corporate formation documents, set up
Protoshop’s email accounts and web domain, researched health insurance plans for
Protoshop employees, sought out and ordered equipment, and secured office
space.299 His own contemporaneous messages confirm his involvement and
repeatedly take credit for Protoshop.300 Through these actions, he violated Section
6.8(a)(i) of the EPA.301
298 Castanon Tr. 350-51 (“I didn’t say I didn’t have involvement with [Protoshop]. I completed approximately—my guess is that I helped set up about 20 percent of their startup tasks. I mean, I provided substantial startup help.”); see id. at 400 (“I’ve said many, many times, I helped them get started. I helped them with startup tasks.”); id. at 401 (“No, I’m not in the background. I’m here in text messages. I’m interacting with vendors. There’s nothing hidden here. I helped them. I admitted I helped them.”); id. at 438-39 (discussing a text message sent from Castanon to Ceriani where he noted “[t]oday I’m working on website content for phase 1.5 and providing information for [search engine optimization], [pay per click] and social media”); see also id. at 280, 376, 398. 299 See supra Section I.I. 300 See supra notes 156-58 and accompanying text; see also JX 686 (“After 20+ years in the molding business, I just launched a new take on mold fabrication (ProtoShopInc) that means prototype molds getting fabricated in 3‐5 days and mold iterations within 1‐2 days. I’m reaching out to get connected with engineers as I build out ProtoShop. Love to give you a glimpse at how we are solving some of the biggest headaches I dealt with all those years on the client side of the table.”). 301 See, e.g., Sorrento Therapeutics, Inc. v. Mack, 2023 WL 5670689, at *19 (Del. Ch. Sept. 1, 2023) (describing a restrictive covenant barring a party from “directly or indirectly” engaging in competitive activity as “broad” and noting that “[a]ctivities undertaken in an effort to prepare a product to compete constitute an activity indirectly competitive with [the 56 Castanon also breached Section 6.8(a)(ii) because he “directly or indirectly”
has “an interest in [a] Person that engages directly or indirectly in the Restricted
Business in the Territory in any capacity.”302 Arguably, Castanon had a direct
financial interest in Protoshop. He personally took on the lease for Protoshop’s
office,303 guaranteed equipment loans for Protoshop,304 and made thousands of
dollars of purchases for Protoshop using his own funds.305 Regardless, Castanon has
a “direct or indirect interest” in Isaacs (his stepson and the recipient of a substantial
loan from Castanon as the “rich uncle”), who owns 75% of Protoshop. 306
* * *
Protoshop is a Restricted Business that Castanon took part in. Castanon’s
hyper-technical arguments to the contrary are belied by both the text of the contract
and common sense. The evidence shows that Protoshop serves as a partial market
company]”); Tristate Courier & Carriage, Inc. v. Berryman, 2004 WL 835886, at *9, *14 (Del. Ch. Apr. 15, 2004) (holding that a former employee “indirectly competed with” his former employer “by assisting in the development of a company offering services substantially similar to those offered by” the former employer); Kan-Di-Ki, 2015 WL 4503210, at *21 (concluding that a defendant violated a restrictive covenant barring him from “engag[ing] directly or indirectly in all or any portion of the Business” where the defendant indirectly competed by helping the third-party company transition away from the plaintiff’s services to other vendors). 302 EPA § 6.8(a)(ii). 303 PTO ¶ II.C.52. 304 Id. ¶¶ II.C.72-73. 305 See supra note 131 and accompanying text. 306 See Castanon Tr. 321, 335-37; see also PTO ¶ II.C.74.
57 substitute for many of Symbient’s services.307 Protoshop provides an approach that
shortened both the “on ramp” and “off ramp” for Symbient projects.308 Protoshop’s
efforts to participate in the same business as Symbient is especially apparent from
its use of Symbient product images to advertise for its services.309 Plainly, Protoshop
aims to provide the same products to clients in the same industries as Symbient.
Castanon admittedly provided extensive assistance to Protoshop. He led
efforts to establish Protoshop as a business and set up its physical space. He
repeatedly provided financial assistance. And he has an interest in Isaacs by way of
a substantial loan. Accordingly, Castanon breached Section 6.8(a) of the EPA.
2. Solicitation of Employees
Section 6.8(b) of the EPA prohibits Castanon from “directly or indirectly”
“hir[ing] or solicit[ing] any employee of [Symbient] or encourag[ing] any such
employee to leave such employment or hir[ing] any such employee who has left such
employment.”310 At the very least, Castanon breached this provision by encouraging
Isaacs, Ceriani, and Taylor to leave Symbient.311
307 Helm Tr. 120-21; JX 122 (estimating $1.3 million from “prototype fabrication services”); JX 44 at 11 (estimating total revenue of $6.8 million). 308 See supra notes 140-46 and accompanying text. 309 See supra note 159 and accompanying text. 310 EPA § 6.8(b). 311 Castanon’s actions can also be viewed as indirect solicitation of Ceriani and Isaacs. See Solicit, Merriam-Webster, https://www.merriam-webster.com/dictionary/solicit (last visited Sept. 26, 2023) (defining “solicit” as “to entice or lure”); Solicit, Cambridge 58 To “encourage” means to “attempt to persuade”312 or “make someone more
likely to do something.”313 Although Isaacs and Ceriani said they left Symbient for
Protoshop of their own volition,314 the record demonstrates that Castanon was the
instigator. Castanon provided the financial means for Isaacs and Ceriani to leave
Symbient.315 He also provided the necessary business support, involving himself in
the mechanics of starting Protoshop.316
Castanon even coordinated the timing of Isaacs’ and Ceriani’s resignations.
On October 1, Castanon texted Ceriani: “Jimmy needs to do stuff like set up
machines and build the mold base so we needed him to quit today.”317 Isaacs quit
Dictionary, https://dictionary.cambridge.org/us/dictionary/english/solicit (last visited Sept. 29, 2023) (defining “solicit” as “to ask for something in a persuasive and determined way”); see also Mountain W. Series of Lockton Cos., LLC v. Alliant Ins. Servs., Inc., 2019 WL 2536104, at *13, *23 (Del. Ch. June 20, 2019) (granting a motion for preliminary injunction against a defendant who was aided by several of the plaintiff’s high ranking members in soliciting employees and coordinating their resignation from plaintiff); Hough Assocs., Inc. v. Hill, 2007 WL 148751, at *16 (Del. Ch. Jan. 17, 2007) (describing a defendant’s conduct assisting his new employer in soliciting his former “subordinates” as “easily fit[ting]” within the terms of restrictive covenants). 312 Encourage, Merriam-Webster, https://www.merriam-webster.com/dictionary/ encourage (last visited Sept. 26, 2023). 313 Encourage, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/ english/encourage (last visited Sept. 26, 2023). 314 Isaacs Tr. 170, 175-76, 187-88; Ceriani Tr. 488-92. 315 See supra Section I.I. 316 PTO ¶¶ II.C.40, 45, 51-52. 317 JX 296 at 2.
59 the same day.318 Castanon also advised Ceriani that she “may want to put [her
resignation] in too” so that she could “take a week or two off as a break” and “come
in refreshed.”319
In addition, the documentary evidence proves that Castanon made it more
likely that Taylor would leave Symbient.320 On October 1, Castanon texted Ceriani:
“I think Jenn [Taylor] is quitting early next week because she wants a gap between
jobs.”321 On October 19—the day Taylor left Symbient—Castanon texted Ceriani
to inform her of Taylor’s health insurance status.322 Castanon clearly knew about
and (at least indirectly) helped facilitate Taylor’s resignation.
Finally, as to Lupercio and Ancheta, there is little evidence that Castanon
either solicited them to join Protoshop or encouraged them to leave Symbient. But
given that Castanon knew Lupercio and knew of Ancheta from Symbient and was
pulling the strings at Protoshop, it is reasonable to infer that deleted evidence would
show he directly or indirectly solicited them.323 Castanon’s lost texts with Isaacs,
318 Id. 319 Id. 320 Castanon and Taylor testified to the contrary. See Taylor Tr. 708; Castanon Tr. 278. Castanon’s testimony is not credible. And Taylor seems to have been unaware of Castanon’s involvement behind the scenes. 321 JX 296 at 2. 322 JX 322. 323 Castanon Tr. 432-33; see Pls.’ Post-trial Reply Br. 7; see supra Section II.A.2-3.
60 for example, may have referenced these hires. I draw this adverse inference as a
sanction for Castanon’s spoliation.
3. Solicitation of Customers
Section 6.8(c) of the EPA prohibits Castanon from “directly or indirectly”
“solicit[ing] or entic[ing], or attempt[ing] to solicit or entice, any clients or
customers of [Symbient] or potential clients or customers of [Symbient] for purposes
of diverting their business or services from [Symbient].”324 Castanon breached this
covenant in several ways.
First, he sent LinkedIn messages urging Symbient’s former, current, and
potential future customers to utilize Protoshop.325 He described Protoshop as “new
and improved” relative to Symbient and told potential clients that he had “create[d]
something new . . . even better than before.”326
Castanon also advised on Protoshop projects for current, former, or
prospective Symbient clients:
• ProteoWise was and remains a Symbient customer.327 Shortly after Protoshop opened, Symbient referred ProteoWise to Protoshop due to
324 EPA § 6.8(c). 325 See supra notes 151-58; see also Anderson v. USI Advantage Corp., 2020 WL 1933803, at *3, *5 (N.D. Ga. Apr. 21, 2020) (concluding that corresponding with a former employer’s customers on LinkedIn violated a non-solicit provision); Robert Half Int’l Inc. v. Billingham, 315 F. Supp. 3d 419, 425, 432 (D.D.C. 2018) (holding that sending LinkedIn messages to a former employer’s customers violated a non-solicit provision). 326 JX 686 at 170-71. 327 Helm Tr. 123; PTO ¶ II.B.20.
61 a production backlog.328 Symbient did so believing that Castanon was uninvolved in Protoshop.329 Castanon was, however, advising Ceriani on Protoshop’s projects for ProteoWise.330
• DeviceLab is another former Symbient client—one that Castanon worked with while at Symbient.331 After Castanon left Symbient, he remained in contact with DeviceLab.332 At some point, DeviceLab became a customer of Protoshop.333 In February 2022, Castanon exchanged text messages with a DeviceLab employee pertaining to Protoshop’s work for DeviceLab.334
• Coagulo is a former (and potential future client) of Symbient.335 After Castanon was fired from Symbient on April 21, 2021, Coagulo sought to hire him as a consultant so that he could continue working on Coagulo’s project.336 Symbient objected to the arrangement because
328 Ceriani Tr. 505. 329 Isaacs Dep. 85; Ceriani Dep. 91-92; Helm Tr. 115. 330 PTO ¶ II.C.57; JX 503 (Castanon advising Ceriani on a “Proteowise OM gate” on April 13, 2022). 331 JX 103; JX 692; Castanon Tr. 384. Castanon contends that the plaintiffs waived their claim with respect to DeviceLab. Not so. The plaintiffs’ Complaint was broad enough to put Castanon on notice of the claim, without identifying specific customers. See LaPoint v. AmerisourceBergen Corp., 2007 WL 1454744, at *2 (Del. Ch. May 3, 2007) (denying a motion to exclude evidence of “new claims” or new “damages models” because the amended complaint alleged a “broad claim” and it “is only to be expected” that case theories will “evolve[] over the course of discovery”). Moreover, Castanon’s spoliation prevented the plaintiffs from discovering evidence about DeviceLab earlier. The plaintiffs only discovered Protoshop’s relationship with DeviceLab after the last-minute production of Ceriani’s text messages. See supra Section II.A.2. 332 Castanon Tr. 384-85. JX 434 at 2 (Castanon informing DeviceLab that the “[p]arts are on pace to finish by 333
4pm”); JX 435 (Castanon coordinating with DeviceLab for parts to be picked up). 334 JX 434; JX 435; cf. Castanon Tr. 386-89 (testifying that he was simply handing over parts to the general manager of DeviceLab). 335 JX 534. 336 JX 174; JX 176; JX 180; JX 183; Castanon Tr. 258-59.
62 Castanon had yet to formally resign from Symbient.337 Coagulo became increasingly frustrated with Symbient.338 On the day after Castanon formally resigned, he signed a consultation agreement with Coagulo.339 Consultation work on the specific project that Coagulo initially proposed never materialized.340 Coagulo later became a customer of Protoshop341 and worked directly with Castanon.342
• Sekisui was a prospective Symbient client.343 Sekisui is a now Protoshop client. Castanon advised Ceriani on Protoshop’s projects for Sekisui.344
Coupled with his LinkedIn messages, Castanon’s work and advice on these projects
was a form of solicitation: enticing customers to use Protoshop over Symbient.345
337 JX 174; JX 176; JX 180; JX 183. 338 JX 174; JX 183 at 5. 339 JX 185. 340 JX 207. 341 See, e.g., JX 487. 342 Id. 343 See Helm Tr. 132-37; JX 256; JX 734; see also JX 482 (indicating that Symbient passed on a Sekisui project); JX 731; JX 734; JX 688; Ceriani Tr. 511 (explaining that Symbient had “turn[ed] [Sekisui’s] business away”). 344 PTO ¶ II.C.57; JX 492 (Ceriani emailing Castanon because she “[n]eed[ed]” Castanon’s “expertise” with a Sekisui project); JX 495 (Castanon advising Ceriani on a “Sekisui mold design question”). The plaintiffs also aver that Castanon solicited work from Biocrucible Ltd. and its sister company satio, Inc. The evidence suggests that Symbient’s loss of these relationships was caused by its inability to meet deadlines and Ceriani’s departure. Helm Tr. 115-16; Jurkiewicz Tr. 669-70; cf. Ceriani Tr. 547-50. It could be argued that these problems were caused by Castanon in the first place, but there is insufficient evidence to make that finding. 345 Castanon contends that he did not divert Symbient’s business or services to Protoshop because Symbient and Protoshop did not compete. In his view, Symbient and Protoshop served different customer needs, with Protoshop functioning as a “supplier” for Symbient. 63 The record is sufficient to support a finding that Castanon violated Section 6.8(c) of
the EPA.346 But to the extent that there are gaps in the record with regard to the
customers discussed above, I infer that Castanon indirectly or directly solicited,
enticed, or attempted to solicit or entice them. Since Ceriani’s texts show Castanon’s
work for DeviceLab, Castanon may have directly texted with it and other Symbient
customers. This adverse inference is a sanction for Castanon’s spoliation.
4. Damages
As an element of their breach of contract claim, the plaintiffs must prove that
Castanon’s actions caused them damages.347 The plaintiffs have shown that they
were harmed by Castanon’s breaches of the restrictive covenants in the EPA.348
Among other things, Castanon created a competing business and solicited
Def.’s Post-trial Br. 25. As discussed above, the trial record shows otherwise. See supra notes 151, 159-60, 281-83 and accompanying text. 346 See Lyons Ins. Agency, Inc. v. Wilson, 2018 WL 4677606, at *7 (Del. Ch. Sept. 28, 2018) (concluding that the defendant breached his employment agreement by helping to service and solicit customers from his former employer’s “book of business”); All Pro Maids, Inc. v. Layton, 2004 WL 1878784, at *5-6 (Del. Ch. Aug. 9, 2004) (holding that the defendant breached her employment agreement by soliciting and performing services for her former employer’s clients). 347 See Isr. Disc. Bank, 2013 WL 2326875, at *11. 348 See NetApp, Inc. v. Cinelli, 2023 WL 4925910, at *16 (Del. Ch. Aug. 2, 2023) (explaining that a plaintiff has the burden to “demonstrate with ‘reasonable certainty’ that it was damaged by the challenged conduct” (quoting Siga Techs., Inc. v. PharmAthene, Inc., 132 A.3d 1108, 1111 (Del. 2015))). 64 Symbient’s customers and employees to it. The quantum of the plaintiffs’ damages
is addressed later in this decision.349
C. The Plaintiffs’ Remaining Claims
The plaintiffs’ other claims fail. For the most part, the plaintiffs have simply
recast their contract claims using various legal theories. Their distinct claims were
given short shrift at trial. Judgment is entered for Castanon on each.
1. Implied Covenant of Good Faith and Fair Dealing
Under Delaware law, the implied covenant of good faith and fair dealing
attaches to every contract.350 “The covenant is designed to protect the spirit of an
agreement when, without violating an express term of the agreement, one side uses
oppressive or underhanded tactics to deny the other side the fruits of the parties’
bargain.”351 It “does not apply when the contract addresses the conduct at issue.”352
The plaintiffs’ implied covenant claim cannot stand because the challenged
conduct is governed by the EPA. The facts underlying the plaintiffs’ implied
349 See infra Section II.E.3. 350 See Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441-42 (Del. 2005). 351 BAE Sys. Info. & Elec. Sys. Integration, Inc. v. Lockheed Martin Corp., 2009 WL 264088, at *6 (Del. Ch. Feb. 3, 2009) (cleaned up). 352 Nationwide Emerging Managers, LLC v. Northpointe Hldgs., LLC, 112 A.3d 878, 896 (Del. 2015); see Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009) (“The implied covenant cannot be invoked to override the express terms of the contract.”). 65 covenant claim are the same implicated in the breach of contract claim.353 The
plaintiffs concede as much, acknowledging that their implied covenant claim is
brought in the alternative.354
The plaintiffs point to one separate theory based on Castanon’s purported
development of a “new and improved” molding method for Protoshop shortly after
leaving Symbient.355 This vague argument is not, however, tied to any “specific
implied contractual obligation” or gap in the EPA.356 Moreover, there is little
evidence about this purported molding method, including basic facts about what the
method is and when Castanon developed it.
2. Intentional Interference with Contractual Relations and with Prospective Economic Advantage
The plaintiffs also press claims for intentional interference with contractual
relations and intentional interference with prospective economic advantage. The
353 See Pls.’ Opening Post-trial Br. 38-39 (arguing that the plaintiffs were deprived of the fruits of their bargain because of competition, “draining Symbient’s key employees,” and customer solicitations). 354 Id. 355 Id. at 39; see JX 686 at 171. 356 Kuroda, 971 A.2d at 888 (“[T]o state a claim for breach of the implied covenant, [the plaintiffs] ‘must allege a specific implied contractual obligation, a breach of that obligation by the defendant, and resulting damage to the plaintiff.’” (quoting Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998))). Nor is a gap identified in the Operating Agreement, which—again—was not mentioned in the Complaint. See supra note 249 (discussing waiver of claims based on the Operating Agreement). 66 parties agree (for different reasons) that Delaware law applies to the claims.357 Both
claims are deficient under Delaware law.
To prevail on a claim for tortious interference with contractual relations, the
plaintiffs must demonstrate the existence of “(1) a contract, (2) about which
defendant knew, and (3) an intentional act that is a significant factor in causing the
breach of such contract, (4) without justification, (5) which causes injury.”358 The
plaintiffs aver that Castanon interfered with Symbient’s relationships with customers
(including ProteoWise, Coagulo, and Sekisui) by soliciting them to Protoshop.359
But they have not proven the existence of specific contracts with such customers that
357 Castanon argues that California law applies because California has the most significant relationship to the claims. But he concedes that there is no material difference between California and Delaware law. He briefed Counts III and IV under Delaware law. Def.’s Pre-trial Br. 41-42. The plaintiffs claim Delaware law applies because Counts III and IV are tort claims rooted in breaches of contracts governed by Delaware law. Pls.’ Pre-trial Br. 25-26. 358 Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013) (quoting Irwin & Leighton, Inc. v. W.M. Anderson Co., 532 A.2d 983, 992 (Del. Ch. 1987)). California law likewise requires “(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” Ixchel Pharma, LLC v. Biogen, Inc., 470 P.3d 571, 575 (Cal. 2020). 359 Pls.’ Opening Post-trial Br. 41.
67 were breached.360 There is no proof of even a single contract between Symbient and
its customers. The claim fails on that basis alone.361
A claim for tortious interference with prospective economic advantage
requires the plaintiffs to prove “(a) the reasonable probability of a business
opportunity, (b) the intentional interference by the defendant with that opportunity,
(c) proximate causation, and (d) damages.”362 These factors “must be considered in
light of a defendant’s privilege to compete or protect his business interests in a fair
and lawful manner.”363 As such, the plaintiffs “must prove that the defendant’s
conduct was wrongful independent of the interference. Violations of statutory and
360 See PTO ¶¶ II.B.19-21; Helm Tr. 123 (confirming that ProteoWise remains a Symbient customer); Jurkiewicz Tr. 693 (confirming that Coagulo is a Symbient customer). No customers were deposed or testified at trial. 361 The plaintiffs have also not proven that Castanon’s intentional actions were a significant factor in causing a breach of any such contracts. Nor have they attempted to prove resulting damages. 362 Organovo Hldgs., Inc. v. Dimitrov, 162 A.3d 102, 122 (Del. Ch. 2017) (quoting DeBonaventura v. Nationwide Mut. Ins. Co., 419 A.2d 942, 947 (Del. Ch. 1980)). 363 Agilent Techs., Inc. v. Kirkland, 2009 WL 119865, at *5 (Del. Ch. Jan. 20, 2009) (citation omitted). California law is identical, requiring: “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; [and] (3) intentional acts on the part of the defendant designed to disrupt the relationship.” Golden Eagle Land Inv., L.P. v. Rancho Santa Fe Ass’n, 227 Cal. Rptr. 3d 903, 927 (Cal. Ct. App. 2018). As in Delaware, the plaintiff must show “that the defendant committed an independently wrongful act.” Ixchel Pharma, LLC v. Biogen, Inc., 470 P.3d 571, 576 (Cal. 2020) (“[A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.”). 68 common law, as well as legal standards of behavior more broadly, satisfy the
independent wrongfulness requirement.”364
The plaintiffs argue that Symbient had a reasonable probability of future
business opportunities with Symbient’s current, former, and potential customers—
including ProteoWise, Coagulo, Sekisui, DeviceLab, Biocrucible, and satio.365 They
proved that Castanon (directly or indirectly) solicited certain of these customers in
breach of the EPA.366 But they come up short in proving lost business
opportunities.367 No concrete evidence of lost bids or contracts, revenue dissipation,
or lost order volume from the customers was introduced.368 The record also cannot
364 KT4 P’rs LLC v. Palantir Techs. Inc., 2021 WL 2823567, at *19 (Del. Super. June 24, 2021). 365 Pls.’ Opening Post-trial Br. 41. 366 See supra Section II.B.3. 367 Solicitation of customers (or prospective customers) does not necessarily give rise to tortious interference with a prospective economic advantage. See, e.g., Wayman Fire Prot., Inc. v. Premium Fire & Sec., LLC, 2014 WL 897223, at *11, *26 (Del. Ch. Mar. 5, 2014) (holding after trial that the plaintiff did not demonstrate tortious interference where it lacked a reasonable expectation in securing prospective customers, despite showing that the defendant breached a preliminary injunction preventing it from soliciting the plaintiff’s prospective customers). 368 See Agilent Techs., 2009 WL 119865, at *7 (“[T]o plead a reasonable probability of a business opportunity, [a plaintiff] must identify a specific party who was prepared to enter into a business relationship but was dissuaded from doing so by the defendant and cannot rely on generalized allegations of harm.”); see also Triton Const., 2009 WL 1387115, at *18 (rejecting an argument that the defendant tortiously interfered with job bids where there was nothing in the record “besides [plaintiff’s] declaration that it had a reasonable business expectancy to support the conclusion that it did, in fact, have such an expectancy in the jobs in which it did not bid”). 69 support a finding that future expected work from these customers was “reasonably
probable” absent Castanon’s intentional interference.369
The plaintiffs perhaps come the closest to meeting their burden with regard to
ProteoWise, which worked with Protoshop when Symbient was at a diminished
capacity.370 Still, proof of Castanon’s intentional interference and proximate cause
is lacking.371 There is no evidence that Castanon sought to connect ProteoWise to
Protoshop. Rather, Symbient affirmatively referred ProteoWise to Protoshop, and
ProteoWise then reached out to Ceriani.372 Further, the plaintiffs did not prove that
Castanon was the proximate cause of their inability to timely complete ProteoWise’s
requests.373
369 Agilent Techs., 2009 WL 119865, at *7 (“To be reasonably probable, a business opportunity must be ‘something more than a mere hope or the innate optimism of the salesman’ or a ‘mere perception of a prospective business relationship.’” (quoting Wolk v. Teledyne Indus., Inc., 475 F. Supp. 2d 491, 512 (E.D. Pa. 2007); Lipson v. Anesthesia Servs., P.A., 790 A.2d 1261 (Del. Super. 2001))); see also Wayman Fire Prot., 2014 WL 897223, at *11 (“[W]hile [plaintiff] has shown that its chances of securing the upgrade contract were something greater than zero, it has not met its burden of demonstrating that those chances were high enough such that it reasonably could expect that [the prospective customer] would select its bid.”); Triton Const., 2009 WL 1387115, at *18 (“Even if this Court assumes, as [plaintiff] argues, that it had no opportunity to bid on 131 of the 195 jobs because [defendant] diverted them, [plaintiff] has not proved that it had a reasonable probability of obtaining any of those jobs.”). 370 JX 565; JX 347. 371 In addition, no specific damages have been proven for this purported loss. 372 JX 347. 373 Arguments regarding Coagulo and Sekisui are even more strained. The record shows that Coagulo was dissatisfied with Castanon’s exit and sought to retain him as a consultant. See JX 185; see also JX 180; Jurkiewicz Tr. 693. As to Sekisui, Symbient declined work 70 3. Breach of Fiduciary Duty
Finally, the plaintiffs aver that Castanon breached his fiduciary obligations by
misusing confidential information given to him as a Board observer.374 This claim
is baseless.
Castanon did not owe common law fiduciary duties to Symbient after his
officer-level position ended.375 Nor did he not owe contractual obligations akin to
fiduciary duties by virtue of the EPA. Perhaps recognizing that these facts, the
plaintiffs now focus on Castanon’s obligation in the Operating Agreement to “hold
in confidence and trust and to act in a fiduciary manner with respect to all
information” given to him as a Board observer.376 Once again, the plaintiffs did not
fairly or timely raise the Operating Agreement as a source of liability.377 Even if
they had, there is no evidence establishing that Castanon breached this provision of
the Operating Agreement.
from the company in August 2021. See Helm Tr. 132, 134-35; see also JX 482. There is no evidence that Castanon was involved with Symbient’s decision to decline Sekisui’s work. 374 Pls.’ Opening Post-trial Br. 43; Pls.’ Post-trial Reply Br. 29-30. 375 See In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 51 (Del. 2006) (explaining that a former director “could not breach a duty he no longer had”); see also Balotti & Finkelstein, The Delaware Law of Corporations and Business Organizations, §4.8[B] n.124 (3d ed. 2008) (“[B]oard observers are not subject to the same fiduciary duties as directors.”). 376 Operating Agreement § 3.12(b). 377 See infra note 252.
71 The plaintiffs introduced evidence that Castanon attended an August 2021
Board meeting where he received confidential materials.378 But there is nothing in
the record showing that he misused the information. The argument that Castanon
improperly used Symbient confidential information (i.e., images of devices) to
market Protoshop is likewise unavailing. Although the images are obviously of
products Symbient created, there is no evidence that Castanon was the one who
selected or posted the images on Protoshop’s website. The plaintiffs’ speculation is
insufficient proof.379
D. Unclean Hands
Castanon contends that the doctrine of unclean hands precludes the plaintiffs
from obtaining relief. Specifically, he argues that he was wrongfully terminated and
that the plaintiffs concealed information from him during negotiations over the Unit
Repurchase Agreement. To the extent the doctrine is an available defense to the
plaintiffs’ legal claims, its predicate requirements are unmet.
The doctrine of unclean hands provides that a “litigant who engages in
reprehensible conduct in relation to the matter in controversy . . . forfeits [their] right
378 JX 255; see also Finley Tr. 41-43. 379 E.g., Pls.’ Post-trial Reply Br. 29-30 (“The Court can . . . infer that Castanon impermissibly retained these materials, planning to use them for his own competing purposes.”). 72 to have the court hear [their] claim.”380 “In order for the doctrine to apply in the first
place, the improper conduct must relate directly to the underlying litigation.”381 The
relation must be “‘immediate and necessary’ [] to the claims for which the plaintiff
seeks relief.”382 The conduct must also be “so offensive to the integrity of the court
that [the] claims should be denied, regardless of their merit.”383 Nevertheless, the
court “has broad discretion in determining whether to apply the doctrine of unclean
hands.”384
Castanon was not wrongfully terminated. He was terminated without cause,
as his employment agreement with Symbient permitted.385 But insofar as it is
attributable to the plaintiffs, the Board’s conduct while negotiating Castanon’s Unit
Repurchase Agreement is substandard. The Board tried to conceal information that
might have made Castanon less likely to accept a lower offer for his units.
380 Nakahara v. NS 1991 Am. Tr., 739 A.2d 770, 791-92 (Del. Ch. 1998) (quoting In re Enstar Corp., 593 A.2d 543, 553 (Del. Ch. 1991)). 381 Nakahara v. NS 1991 Am. Tr., 718 A.2d 518, 523 (Del. Ch. 1998). 382 Macrophage Therapeutics, Inc. v. Goldberg, 2021 WL 2582967, at *16 (Del. Ch. June 23, 2021) (citation omitted). Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43, 81 (Del. Ch. 2008) (quoting Gallagher v. 383
Holcomb & Salter, 1991 WL 158969, at *4 (Del. Ch. Aug. 16, 1991)). 384 RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 876 (Del. 2015) (quoting SmithKline Beecham Pharms. Co. v. Merck & Co., Inc., 766 A.2d 442, 448 (Del. 2000)) (citation omitted). 385 JX 64 at 3.
73 Regardless, this behavior is neither directly related to the underlying litigation nor
“so offensive” as to invoke unclean hands.386
Even if it were, Castanon’s attempt to invoke equity unravels in light of his
own misconduct. “This court has consistently refused to apply the doctrine of
unclean hands to bar an otherwise valid claim of relief where the doctrine would
work an inequitable result.”387 I decline to apply the doctrine.
E. The Remedy
The plaintiffs have proven that Castanon breached the non-compete and non-
solicit covenants in the EPA. They seek several different remedies for these harms.
First, they ask for disgorgement of at least $7.4 million based on the sale of Symbient
to Gener8 or, alternatively, compensatory damages of approximately $2.3 million.
Second, they request injunctive relief requiring Castanon to abide by the terms of
the EPA’s restrictive covenants. Finally, they seek payment of their attorneys’ fees
and costs under a prevailing party provision in the EPA.
386 See Am. Healthcare Admin. Servs., Inc. v. Aizen, 285 A.3d 461, 494 (Del. Ch. 2022) (explaining that the doctrine of unclean hands “does not extend to any misconduct, however gross, that is unconnected with the matter in litigation, and with which the opposite party has no concern” (quoting 27 Am. Jur. Equity § 25)); see also Portnoy, 940 A.2d at 81 (holding that the plaintiff’s aiding in violations of a confidentiality agreement “while being far from pristine, [fell] well short of disqualifying him from seeking relief” for the defendant’s breach of fiduciary duty). 387 Portnoy, 940 A.2d at 81 (“[U]nclean hands is a doctrine designed to protect the integrity of a court of equity, not a weapon to be wielded by parties seeking to excuse their own inequitable behavior by pointing out a trifling instance of impropriety by their counterpart . . . .”). 74 1. “Disgorgement”
The plaintiffs argue that their damages are “show[n] by the valuation of
Symbient performed by KPMG for the $14.4 million acquisition” by Gener8.388
Their theory is that Castanon’s breach of his restrictive covenants “destroyed the
goodwill and growth” that Gener8 paid to acquire.389 The plaintiffs describe this
approach as restitution in the form of “disgorgement” for part of the acquisition
price.390 Regardless of how they style it, the plaintiffs’ request is deeply flawed.
Fundamentally, this remedy is untethered from the harm caused by Castanon’s
breaches of his covenants not to compete or solicit. “It is a basic principle of contract
law that [the] remedy for a breach should seek to give the nonbreaching [] party the
benefit of its bargain by putting that party in the position it would have been but for
388 Pls.’ Opening Post-trial Br. 45. 389 Id. 390 See id. at 45-46; see also Post-trial Argument Tr. (Dkt. 164) 75-76. Generally, restitution focuses on the harm to the plaintiff as it pertains to a breach of the parties’ agreement. Performance-based damages under a theory of restitution can be measured by “the market value of the plaintiff’s uncompensated contractual performance, not exceeding the price of such performance as determined by reference to the parties’ agreement.” Restatement (Third) of Restitution and Unjust Enrichment § 38(2)(b) (Am. L. Inst. 2011); see also Norton v. Poplos, 443 A.2d 1, 4-5 (Del. 1982) (discussing restitution in the context of rescission). Disgorgement focuses on the defendant’s gain from illegal conduct. It is “the act of giving up something (such as profits illegally obtained) on demand or by legal compulsion.” TIAA-CREF Individual & Instit. Servs., LLC v. Ill. Nat’l Ins. Co., 2016 WL 6534271, at *10 (Del. Super. Oct. 20, 2016) (quoting Disgorgement, Black’s Law Dictionary (10th ed. 2014)); see also Avande, Inc. v. Evans, 2019 WL 3800168, at *18 (Del. Ch. Aug. 13, 2019) (“The purpose of disgorgement is to deter ‘acts of conscious wrongdoing and breaches of a fiduciary’s duty of loyalty . . . by requiring the wrongdoer to disgorge any profit made as a result of such wrongful conduct.’”). 75 the breach.”391 The plaintiffs do not argue that Castanon was unjustly enriched
through the sale of Symbient and the transaction is not the underlying wrong at issue
in this case.392 To award damages on this basis, particularly while the plaintiffs
retain the assets and upside, would result in a windfall exceeding the relevant
expectations.393
Even if such a remedy were hypothetically available (it is not), I would reject
the plaintiffs’ request. The plaintiffs seek to recover approximately $7.4 million:
$9.6 million “for the value of goodwill” prorated by the time Castanon complied
with his restrictive covenants (14 of 60 months, or 23.3%).394 They base their
calculation on a purchase price allocation KPMG LLP performed before Gener8’s
acquisition of Symbient (the “PPA”).395 The PPA allocated $9,657,000 to
391 Genencor Int’l, Inc. v. Novo Nordisk A/S, 766 A.2d 8, 11 (Del. 2000). 392 There is no evidence that Castanon gained profits from his breaches of the EPA. The record does not suggest that he draws a salary from Protoshop or holds any equity interests. Isaacs Tr. 198-99; Castanon Tr. 263; Ceriani Tr. 495. 393 E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 445 (Del. 1996) (observing that “damages for breach of contract have been limited to the non-breaching parties’ expectation interest”); see also Topps Co., Inc. v. Cadbury Stani S.A.I.C., 380 F. Supp. 2d 250, 269 (S.D.N.Y. 2005) (explaining that disgorgement “is not an appropriate remedy for a breach of contract” because it “looks to the defendant’s ill-gotten gains, rather than to the plaintiffs losses”). 394 See Pls.’ Opening Post-trial Br. 45-46. 395 JX 65; see Finley Tr. 14-15; d’Almeida Tr. 748-49. A purchase price allocation assigns the purchase price to the various assets and liabilities acquired. For example, the PPA allocated a portion of the purchase price to items such as “Cash,” “Accounts Receivable,” and “Inventory.” JX 65. 76 “Goodwill.”396 But, as the defendant’s expert Jaime d’Almeida explained at trial,
the PPA’s goodwill estimate is “an accounting calculation” that “has nothing to do
with economic value.”397 It is simply “the difference between the purchase price and
all th[e] assets [KPMG] identified.”398
I need not consider this remedy further. It is unfitting and unfounded.
2. Lost Profits
I next consider the plaintiffs’ request for expectation damages in the form of
lost profits. Under Delaware law, the standard remedy for breach of contract “is
based upon the reasonable expectations of the parties ex ante.”399 One measure of
expectation damages is lost profits resulting from the breach. 400
396 JX 65. 397 d’Almeida Tr. 756; see id. at 760 (“So this [goodwill] isn’t valued directly. It’s a residual after subtracting all the other assets that have been – either been identified.”). 398 d’Almeida Tr. 748-49. 399 Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001). 400 See PharmAthene, Inc. v. SIGA Techs., Inc., 2014 WL 3974167, at *7 (Del. Ch. Aug. 8, 2014) (“One measure of expectation damages is a party’s lost profits.”); Base Optics Inc. v. Liu, 2015 WL 3491495, at *16 n.122 (Del. Ch. May 29, 2015) (“[T]his Court has found that, in the context of a breach of a non-compete agreement, lost profits from business within the scope of the parties’ non-compete are direct, not consequential damages.”); Symbiont.io, Inc. v. Ipreo Hldgs., LLC, 2021 WL 3575709, at *57 (Del. Ch. Aug. 13, 2021) (noting that “a standard measure of damages that courts deploy in cases involving breaches of restrictive covenants [is] the profits that the venture could have obtained but for the prohibited conduct”); Del. Express Shuttle, Inc. v. Older, 2002 WL 31458243, at *15 (Del. Ch. Oct. 23, 2002) (awarding the plaintiffs damages equal to “any profits earned by the Defendants that may be attributed to the breach of the Non- Competition Agreement”); see also NetApp, 2023 WL 4925910, at *19 (discussing the award of lost profits as a “forward-looking measure” of expectation damages designed “to 77 The plaintiffs seek damages equal to profits lost after Castanon solicited or
encouraged Isaacs, Ceriani, and others to join Protoshop. They rely on the testimony
of Dr. Brett Margolin, who estimated that Symbient suffered between $1,529,146 to
$2,333,067 in lost profits because of Castanon’s actions.401 Margolin assessed two
different components of lost profit damages: “Fee Damages” and “Customer
Retention Damages.”402 In rebuttal, Castanon proffered the testimony of d’Almeida,
who critiqued Margolin’s analysis.403
Fee Damages, as described by Margolin, are the result of Symbient’s “lost
opportunity to deploy” the “services” of “Solicited Employees” and “earn profits on
the associated fees and materials revenues.”404 Margolin estimated lost revenue,
added profits on expected materials and overhead billing, and subtracted avoided
restore the injured party to the economically equivalent position it would have held absent the injury”); Leaf Invenergy Co. v. Invenergy Renewables LLC, 210 A.3d 688, 695 (Del. 2019) (“When determining expectation damages, courts determine an amount that will give the injured party ‘the benefit of its bargain by putting that party in the position it would have been but for the breach.’ The primary element of expectation damages is [] ‘the value that the performance would have had to the injured party,’ or the ‘loss in value’ caused by the deficient performance compared to what had been expected.”). 401 JX 662 (“Margolin Report”). 402 Id. at 6. The “Solicited Employees” are Ceriani, Isaacs, Lupercio, Ancheta, and Taylor. Id. 403 JX 667 (“d’Almeida Report”). 404 Margolin Report 6.
78 costs including payroll expenses and employee benefits.405 His calculation of
avoided costs also adjusted for time spent on managerial duties.406
Margolin’s Customer Retention Damages analysis assumes that Symbient
benefits from repeat customer contracting.407 Margolin opined that the departure of
the solicited employees reduced Symbient’s repeat customer pool. To quantify this
effect, he applied the attrition rate to forecast the reduction in repeat customer
contracting in the period after the Fee Damages accrued.408
Margolin’s model also assumes that Symbient was “supply constrained”
during the Fee Damages period.409 “Supply constrained” means that the demand for
Symbient’s services exceeded its available professional hours by at least as much as
the billable hours lost with the solicited employees. In other words, had Castanon
not solicited certain employees, Symbient could have entered client contracts that
would maintain the employees’ billable hours. Margolin also acknowledged that his
405 Id. at 7-8. 406 Id. at 8. In other words, these employees generated value for—and were compensated by—Symbient for both their billing and managerial activities. This adjustment accounted for the latter. 407 Id. at 6. 408 Suppose, for example, Fee Damages lasted until 2022, at which time they were $1,000. In that case, Customer Retention Damages would be $700 in 2023, $490 in 2024, and so on. Fee Damages would be $0 from 2023 and thereafter. 409 Margolin Report 9.
79 model presumes the solicited employees would remain with Symbient throughout
the relevant period.410
Using this approach, Margolin estimated damages of $1,529,146 (assuming
that Symbient was supply constrained through 2022) and $2,333,067 (assuming that
Symbient was supply constrained through 2024).411
I reject Margolin’s analysis for several reasons.412
First, Margolin’s Fee Damages are speculative. The keystone of his analysis
is that Symbient would have had more business but for the loss of the solicited
employees.413 Margolin did not, however, identify a single job that was rejected due
to insufficient staff.
Moreover, Margolin does not consider mitigation efforts. The calculation of
lost profit damages should be offset by a plaintiff’s actions to overcome harm caused
by the defendant.414 Margolin accepted that Symbient could not have replaced the
410 Id. at 11. 411 Margolin discounted future year Fee Damages and Customer Retention Damages to present value using a 21% cost of capital. Margolin Report 11. 412 I also question whether such damages are supported by the terms of the EPA. See EPA § 9.2 (providing that Castanon shall indemnify the plaintiffs for “Losses” suffered by the plaintiffs arising out of a “breach of any covenant or agreement” in the EPA); id. § 10.1(a) (defining “Losses” as damages “excluding lost profits”). Neither party briefed this matter. 413 See d’Almeida Tr. 790. 414 See d’Almeida Report 42 (quoting AICPA Practice Aid: 06-4 Calculating Lost Profits 45). 80 solicited employees. But the evidence shows that Symbient managed to replace each
of the solicited employees with internal promotions or new hires.415 With the
solicited employees all (or mostly) replaced, any lost profits would be reduced.416
Margolin’s calculation of Customer Retention Damages is equally
conclusory.417 Margolin provided no backup for his conclusion that each
employee’s departure “reduce[d] the pool of repeat customers on which future fee
volumes depend.”418 There is no reliable evidence suggesting that the departures
affected Symbient’s ability to retain customers. In fact, only Ceriani was customer-
facing.419
Ultimately, Margolin sets forth an unreliable measure of damages. I decline
to adopt it.
3. Damages For Out-of-Pocket Losses
d’Almeida suggests that, to the extent the court is inclined to award damages,
a “more appropriate and supported calculation” would be based on the lost value of
Symbient’s workforce.420 I agree. The plaintiffs proved that the departure of the
415 See Jurkiewicz Tr. 697-98; d’Almeida Report 14-16; JX 373; see also d’Almeida Tr. 791-96. 416 See d’Almeida Tr. 789, 791-95. 417 d’Almeida Report 43-44. 418 Margolin Report 6. 419 d’Almeida Report 43-44. 420 See id. at 48.
81 solicited employees harmed Symbient.421 Hiring and training new employees is not
costless and internal promotions may divert corporate resources.422 Awarding
damages measured by these one-time losses will (at least partly) compensate
Symbient for Castanon’s solicitation of its employees.423
As part of Gener8’s diligence on the Symbient acquisition, Gener8 engaged
KPMG LLP to perform a valuation of Symbient’s assets (the “KPMG Report”).424
Neither party disputes the credibility of the KPMG Report.425 Among other things,
the KPMG Report valued Symbient’s “Assembled Workforce” by estimating the
“[a]voided recruiting costs” and “[a]voided training costs and loss of productivity”
of each employee.426 Hiring and training new employees would drain resources, and
the value of Symbient’s workforce was the sum total of those avoided costs. This is
a more responsible measure of compensatory damages than that advanced by
Margolin.427
421 See Helms Tr. 104-06, 155; Jurkiewicz Tr. 698, 703. 422 JX 152 at 23. 423 See NetApp, 2023 WL 4925910, at *17 (describing “out-of-pocket” compensatory damages as “designed to restore the plaintiff to his financial position” before the harm occurred and appropriate to resolve one-time costs). 424 JX 152. 425 See Margolin Tr. 616-17; d’Almeida Tr. 761-62. 426 JX 152 at 23. 427 See d’Almeida Report 11; d’Almeida Tr. 787-90.
82 The KPMG Report estimated the “Assembly Costs” for Symbient’s workforce
by employee category. The relevant categories and associated assembly costs as
applied to the five solicited employees yields total costs of $104,356.00:428
Solicited Employee Employee Category Assembly Cost Ceriani Engineer $32,244.00 Ancheta Machinist $22,353.00 Isaacs Shop Supervisor $22,189.00 Lupercio Molding Supervisor $20,247.00 Taylor Office Manager $7,323.00 Total Costs $104,356.00
Whether Symbient incurred these precise costs in replacing the employees it
lost to Protoshop is uncertain. Delaware law does not, however, “require certainty
in the award of damages where a wrong has been proven and injury established.”429
The amounts described above provide a non-speculative, “responsible estimate.”430
Accordingly, the plaintiffs are awarded $104,356.00 in damages to compensate them
for Castanon’s breach of Section 6.8(b) of the EPA.
428 JX 152 at 53. 429 Del. Express, 2002 WL 31458243, at *15 (“Responsible estimates that lack mathematical certainty are permissible so long as the court has a basis to make a responsible estimate of damages.”); see also Siga Techs., 132 A.3d at 1111 (“The amount of damages can be an estimate.”). 430 Beard Rsch. Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010).
83 4. Injunctive Relief
In addition to damages, the plaintiffs seek injunctive relief specifically
enforcing the EPA.431 To prove their entitlement to injunctive relief, the plaintiffs
must demonstrate (1) actual success on the merits, (2) irreparable harm, and (3) that
the balance of the equities weighs in favor of issuing an injunction. 432 “Further, to
gain specific performance of a covenant not to compete, these elements must be
established by clear and convincing evidence.”433
The plaintiffs established each of these elements. Castanon breached Sections
6.8(a), 6.8(b), and 6.8(c) of the EPA. “[O]ur law has consistently found a threat of
irreparable injury in circumstances when a covenant not to compete is breached.”434
The equities favor issuing an injunction—especially given the unavailability of
monetary damages to remedy Castanon’s violation of his non-compete. Castanon is
enjoined from: (1) soliciting the plaintiffs’ employees or customers; and (2) having
any involvement with Protoshop or any other Restricted Business, as prohibited by
431 The plaintiffs also requested specific performance of the Operating Agreement but waived any claim based on that agreement. Regardless, the Operating Agreement cannot be specifically enforced against Castanon since he is no longer a member of G8 Holdings. 432 Concord Steel, Inc. v. Wilm. Steel Processing Co., 2009 WL 3161643, at *14 (Del. Ch. Sept. 30, 2009), aff’d, 7 A.3d 486 (Del. 2010). 433 Hough Assocs., 2007 WL 148751, at *14. 434 Id. at *18.
84 the restrictive covenants in the EPA.435 This injunction will remain in place through
the end of the EPA’s “Restricted Period,” which ends on February 20, 2025.
5. Attorneys’ Fees and Costs
Finally, the plaintiffs seek an award of their attorneys’ fees and costs.
“Although the so-called American Rule generally requires each party to bear its own
attorney’s fees, the parties may, of course, by contract shift that burden.”436 Section
10.14 of the EPA entitles the “prevailing party” to recover “its actual out-of-pocket
costs and expenses, including without limitation reasonable attorneys’ fees incurred
in connection with” “an action to enforce [that party’s] rights under [the EPA].”437
“In determining status as the prevailing party,” Delaware looks to “predominance in
the litigation.”438
The predominant issue in this case was whether Castanon breached non-
compete and non-solicit covenants in the EPA. The other claims stemmed from the
same factual predicate and involved issues overlapping with Castanon’s contractual
breaches. The plaintiffs are the prevailing party on the breach of contract claim
435 EPA § 6.8(a). 436 Del. Express, 2002 WL 31458243, at *23. 437 EPA § 10.14. 438 Comrie v. Enterasys Networks, Inc., 2004 WL 936505, at *2 (Del. Ch. Apr. 27, 2004).
85 concerning Sections 6.8 (a), (b), and (c) of the EPA.439 Thus, the plaintiffs are
contractually entitled to their “reasonable attorneys’ fees.”440
The plaintiffs maintain that I should award the full amount of their fees
without limitation. At present, the plaintiffs have not attempted to quantify the fees
and expenses incurred in this litigation. Without that information, I cannot
determine if the fees sought are reasonable—a term that the parties contracted for in
the EPA. Additional submissions are necessary to determine whether the fees and
expenses sought are reasonable.
III. CONCLUSION
Castanon breached Sections 6.8(a), 6.8(b), and 6.8(c) of the EPA. Judgment
on Count I is entered for the plaintiffs. The plaintiffs are awarded $104,356.00 in
damages, plus pre-judgment interest at the legal rate.441 The plaintiffs are also
awarded their reasonable attorneys’ fees and expenses. Additionally, an injunction
439 See id. (deeming the plaintiffs the “prevailing party,” despite receiving 28% of the remedy sought, because “[t]he main issue in th[e] case—and the issue upon which it can be determined the plaintiffs predominated in litigation—[wa]s the interpretation of the Agreement”); 2009 Caiola Fam. Tr. v. PWA, LLC, 2015 WL 6007596, at *33 (Del. Ch. Oct. 14, 2015) (explaining that “[t]o achieve predominance, a litigant should prevail on the case’s ‘chief issue’” (quoting W. Willow-Bay Ct., LLC v. Robino-Bay Ct. Plaza, LLC, 2009 WL 458779, at *9 (Del. Ch. Feb. 23, 2009))). 440 EPA § 10.14. 441 See Citadel Holding Corp. v. Roven, 603 A.2d 818, 826 (Del. 1992) (“In Delaware, prejudgment interest is awarded as a matter of right.”) (citing Moskowitz v. Mayor & Council of Wilm., 391 A.2d 209 (Del. 1978)). 86 is issued requiring Castanon to abide by Sections 6.8(a), 6.8(b), and 6.8(c) of the
EPA until February 20, 2025.
The plaintiffs did not prevail on Counts II through V. Judgment is entered for
Castanon on those claims.
Castanon also committed contempt and spoliation. As remedies, I have drawn
limited adverse inferences in favor of the plaintiffs and award the plaintiffs their
reasonable attorneys’ fees and expenses incurred in bringing the motion for
sanctions.
The parties shall confer on an order to implement this decision and file it
within 30 days. The parties shall also confer on a schedule for submissions to resolve
the reasonableness of the plaintiffs’ fees and expenses.
Related
Cite This Page — Counsel Stack
Gener8, LLC and Symbient Product Development, LLC v. Scott Castanon, Counsel Stack Legal Research, https://law.counselstack.com/opinion/gener8-llc-and-symbient-product-development-llc-v-scott-castanon-delch-2023.