      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PETER E. DEUTSCH,                               )
                                                )
                 Plaintiff,                     )
           v.                                   ) C.A. No. 8014-VCL
                                                )
ZST DIGITAL NETWORKS, INC.,                     )
                                                )
                Defendant.                      )


                              MEMORANDUM OPINION

                              Date Submitted: March 26, 2018
                               Date Decided: June 14, 2018

Theodore A. Kittila, James G. McMillan, III, HALLORAN FARKAS + KITTILA LLP,
Wilmington, Delaware; David Graff, ROBINS KAPLAN LLP, New York, New York;
Attorneys for Receiver Robert W. Seiden.

David L. Finger, FINGER & SLANINA, LLC, Wilmington, Delaware; Attorney for Non-
parties Bo Zhong and Lin Zhong.


LASTER, V.C.
       ZST Digital Networks, Inc. (the “Company”) is a Delaware corporation which,

through three intermediate holding companies, owns an operating company that does

business in China and is organized under Chinese law. The Company raised capital by

accessing the public markets in the United States. It has since delisted.

       Peter Deutsch owns a significant block of stock in the Company. Deutsch sought

books and records from the Company. The Company failed to appear, defaulted, and

judgment was entered against it.

       Deutsch sought to enforce the default judgment. The Company failed to comply.

Deutsch demonstrated that the Company was in contempt of this court’s order.

       As a coercive sanction, I appointed a receiver with the authority to cause the

Company to comply with the judgment. The receiver has spent five years and invested

significant resources attempting to cause the Company to comply. The receiver has

obtained additional orders from this court imposing further sanctions for contempt. The

receiver also has secured the assistance of other courts in multiple domestic and

international jurisdictions.

       After other coercive sanctions proved ineffective, the receiver moved for the

issuance of bench warrants calling for the arrest of two senior officers of the Company.

Both are Chinese nationals, but they frequently visit the United States. Because of

arrangements that the United States government has made for the enforcement of arrest

warrants, issuing the bench warrants should result in the senior officers being arrested when

next they visit the United States.




                                             1
       The senior officers previously ignored this action. Faced with the current motion,

they hastily appeared and raised a slew of objections, which this decision rejects. This

decision nevertheless holds that the facts of the case call for additional proceedings before

issuing arrest warrants.

       The receiver shall submit a form of order that specifically directs the two officers to

take or cause the Company to take the actions which the Company has failed to take to

date. The order shall require compliance within sixty days. If the officers fail to comply

with that order, then the receiver may seek the issuance of bench warrants as a coercive

sanction for contempt.

                           I.     FACTUAL BACKGROUND

       The Company defaulted in this action, with the consequence that the court “accepts

as true all the averments in the complaint, as a matter of law.”1 Other facts are drawn from

prior rulings in this case, the receiver’s periodic reports to the court, the Company’s public

filings, the current motion for contempt, and documents submitted in connection with the

motion. Because the Company and its principals have steadfastly ignored this proceeding,

the court has not yet conducted an evidentiary hearing with the benefit of adversarial

presentations. The description of the factual background in this decision, therefore, does




       1
        Whitwell v. Archmere Acad., Inc., 2008 WL 1735370, at *5 (Del. Super. Apr. 16,
2008); accord Campbell v. Robinson, 2007 WL 1765558, at *3 (Del. Super. June 19, 2007)
(“Upon entering default judgment, the Court accepted as true all well-pleaded allegations
in Plaintiffs’ complaint.”); Carlton Invs. v. TLC Beatrice Int’l Hldgs., Inc., 1996 WL
426501, at *1 (Del. Ch. July 24, 1996) (Allen, C.) (“The effect of a default is simply to
admit all of the well-pleaded allegations of the complaint.”).


                                              2
not represent formal factual findings. It rather represents how the record appears at this

stage.

A.       The Holding Company Structure

         The Company is the ultimate parent entity in a holding company structure. Through

its subsidiaries, the Company is “principally engaged in supplying digital and optical

network equipment to cable systems operators in the Henan Province of China.”2 Bo Zhong

is the Chairman of the Board and Chief Executive Officer of the Company. His son, Lin

Zhong, is a director and Chief Financial Officer of the Company.3

         The Zhongs used the Company as a vehicle for accessing the U.S. capital markets.

In October 2009, the Zhongs and the Company completed an underwritten, all-secondary

offering and listed the Company’s shares on the NASDAQ Global Market.4 The offering

raised approximately $29,976,960. After the offering, the Zhongs controlled 43.57% of the

Company’s shares.5




         2
        See ZST Digital Networks, Inc., Prospectus 1 (Oct. 20, 2009) [hereinafter
Prospectus]. This court can take judicial notice of public filings with the SEC. See, e.g.,
DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346, 351 n.7 (Del. 2017).
         3
         The parties and the documents refer inconsistently to the Zhongs, at times placing
their family name first in Chinese fashion (i.e., Zhong Bo and Zhong Lin), and at other
times placing their family name second in Western fashion (i.e., Bo Zhong and Lin Zhong).
The briefs use the latter format, which this decision adopts. Because the Zhongs share a
family name, this decision refers to the father as Bo and the son as Lin. No disrespect is
intended.
         4
             See generally Prospectus.
         5
             See Prospectus at 22.


                                             3
       The Company’s principal asset is its ownership of 100% of the equity of World

Orient Universal Limited, a corporation organized under the laws of the British Virgin

Islands. World Orient in turn owns 100% of the equity of Global Asia Universal Limited,

also organized under the laws of the British Virgin Islands. Global Asia owns 100% of the

equity of EverFair Technologies, Ltd., a corporation organized under the laws of Hong

Kong. For simplicity, this decision refers to World Orient and Global Asia as the “BVI

Subsidiaries” and to EverFair as the “Hong Kong Subsidiary.”

       At the base of the tower is Zhenzhou Shenyang Technology Company Limited, an

entity organized under the laws of the People’s Republic of China and controlled by the

Hong Kong Subsidiary. Directly or through additional subsidiaries of its own, Zhenzhou

Shenyang carries out the Company’s business operations. For simplicity, this decision calls

it the “Operating Company.”

B.     The Company Goes Dark.

       After its IPO, the Company made a series of regular periodic reports and appeared

to be financially healthy.6 That changed on March 26, 2012, when the Company announced

that its outside auditors had resigned. In their public resignation letter, the auditors stated

that the Company had obstructed their efforts to verify its cash and account balances,

preventing the auditors from satisfactorily completing their audit for fiscal year 2011 and




       6
        See, e.g., Dkt. 16 Ex. 3 (Company’s Form 10-Q for the quarter ending September
30, 2011, showing over $100 million in assets, only $11.1 in liabilities, and no long-term
indebtedness).


                                              4
forcing them to resign.7 The auditors also stated that they could no longer certify the results

of their audit of the Company’s financial statements for fiscal year 2010.

       On April 6, 2012, the Company announced that it was voluntarily delisting its shares

from the NASDAQ. The Company stated that its shares would continue to be available for

over-the-counter trading.8

       On May 29, 2012, the Company announced the resignation of Li Zhi Tian, a director

who served on the Audit Committee and the Compensation Committee and who chaired

the Nominating Committee.9

       On August 13, 2012, the Company terminated its listing with the United States

Securities and Exchange Commission.10 Following the termination, the Company was no

longer obligated to make periodic filings with the SEC.

C.     The Section 220 Action

       Deutsch is one of the Company’s largest outside investors. He currently holds

3,931,370 shares of the Company’s common stock.11




       7
           See Dkt. 16 Ex. 12 (Company’s Form 8-K announcing resignation of the auditors).
       8
        See Dkt. 16 Ex. 13 (Company press release announcing delisting); see also Dkt.
16 Ex. 14 (Company’s letter to investors seeking to reassure them it was making efforts to
come back into compliance).
       9
           Compl. ¶¶ 10-12 & Ex. C.
       10
            Compl. ¶ 13 & Ex. D.
       11
            Compl. ¶ 7; Dkt. 23 Ex. A.


                                              5
      On September 20, 2012, Deutsch sent the Company a demand for books and records

pursuant to Section 220 of the Delaware General Corporation Law (the “DGCL”).12

Deutsch provided a list of information that he sought on an attached schedule.

      On October 16, 2012, the Company responded. Acting through its counsel, Pillsbury

Winthrop Shaw Pittman LLP, the Company rejected the demand as technically deficient

and demanded that Deutsch conduct any inspection in China.13

      On October 18, 2012, Deutsch provided a revised demand that addressed the

technical objections. He requested that any inspection occur in New York or Delaware.14

On November 2, 2012, Pillsbury Winthrop relayed a letter from the Company reiterating

that any inspection must take place in China.15

      On November 7, 2012, Deutsch filed this action and moved for an expedited

schedule. A telephonic scheduling hearing was set for November 16. Pillsbury Winthrop

declined to appear, conveniently asserting that although the firm had represented the

Company in responding to the Section 220 demand, the firm had not been retained to

represent the Company to handle the ensuing Section 220 proceeding.16 A lawyer with the




      12
           Compl. ¶ 16 & Ex. E.
      13
           Compl. ¶ 19 & Ex. F.
      14
           Compl. ¶ 20 & Ex. G.
      15
           Compl. ¶ 21 & Ex. H.
      16
           Dkt. 14 at 4-5 (hearing transcript).


                                                  6
Delaware law firm of Bayard, P.A. joined the conference but stressed on several occasions

that he had not yet been retained by the Company. 17

       I established an expedited schedule consistent with the summary nature of the

proceeding. To facilitate a prompt disposition of the action, I ordered the Company to

answer the complaint by November 21, 2012.18 The Company did not file an answer by

this deadline.

       On November 26, 2012, Deutsch moved for entry of default judgment.19 When the

Company did not make any effort to appear or respond to the motion, I held that the

Company had defaulted and entered default judgment.20

       The default judgment granted Deutsch the right to inspect the books and records he

sought. It also awarded Deutsch his attorneys’ fees and costs.

D.     The Appointment Of The Receiver

       The Company made no effort to comply with the default judgment. On January 25,

2013, Deutsch moved to hold the Company in contempt.21 By order dated January 31, I

required the Company to show cause why it should not be held in contempt and set March




       17
            See id. at 3.
       18
            See Dkt. 7.
       19
            Dkt. 10.
       20
            Dkt. 14.
       21
            Dkt. 16.


                                            7
18 as the deadline for the Company to file a response.22 The Company did not file a

response. Accordingly, by order dated March 20, I held that the Company had violated the

default judgment and was in contempt.23

       The order finding the Company in contempt awarded Deutsch the relief he had

requested in his motion. That relief included (i) the attorneys’ fees and costs incurred

prosecuting the contempt claim, (ii) an option to put his shares to the Company at a price

of $8.21 (the “Put Right”), and (iii) the appointment of a receiver pursuant to Section 322

of the DGCL “for the purpose of enforcing the Company’s compliance with the Court’s

orders.”24

       On March 25, 2013, Deutsch exercised the Put Right.25 He also submitted a form of

order to appoint Robert W. Seiden as the receiver. I entered the order on March 28.26 The

order empowered the receiver to “take all actions he deems appropriate to obtain [the




       22
            Dkt. 18.
       23
            Dkt. 22.
       24
         Id. ¶ 4; see 8 Del. C. § 322 (“Whenever any corporation shall refuse, fail or neglect
to obey any order or decree of any court of this State within the time fixed by the court for
its observance, such refusal, failure or neglect shall be a sufficient ground for the
appointment of a receiver of the corporation by the Court of Chancery.”).
       25
            Dkt. 23 Ex. A.
       26
            Dkt. 24.


                                              8
Company’s] compliance with” the default judgment, the orders entered to date, and “such

other and further orders as the Court may enter in this action.”27

       The order granted the receiver broad powers for purposes of compelling

compliance. Paragraph 3 of the order stated:

       The Receiver shall have all powers generally available to a receiver
       appointed pursuant to 8 Del. C. § 291, unless any such power would be
       inconsistent with a specific provision of this Order, in which case this Order
       shall govern. Upon the acceptance of this appointment, the Receiver shall
       have full authority and control over the property and/or assets of the
       Company, of whatever kind and wherever located, in the United States of
       America, the People’s Republic of China or elsewhere. This includes,
       without limitation, authority to seize, deal in or dispose of any property of
       the Company. The Receiver shall have full and unrestricted access to all
       books and records of the Company, in whatever mode maintained and
       wherever located, in the United States of America, the People’s Republic of
       China or elsewhere. The Receiver may assert sole control over any present
       bank or other accounts of the Company and/or establish signature authority
       over such accounts as the Receiver deems appropriate. The Receiver shall
       have the power to commence, continue, join in, and/or control any action,
       suit or proceeding, of any kind or nature, in the name of the Company or
       otherwise, including without limitation proceedings to prevent or avoid
       transactions of any kind or nature that may hinder the Company’s compliance
       with this Court’s orders. The Receiver is authorized, in his sole discretion, to
       enlist the help of the employees or agents of the Company. The directors,
       officers, employees, and agents of the Company shall cooperate with the
       Receiver in the performance of his duties. The Receiver is authorized, in his
       sole discretion, to enlist the help of agents, employees or representatives of
       the governments of the United States of America, the People’s Republic of
       China, or any other nation, or of any regional or local governments therein,
       or of any other regulatory body. The Receiver shall have the authority, but
       shall not be required, to petition this Court for instructions at any time or
       from time to time.28




       27
            Id. ¶ 3.
       28
            Id.


                                               9
Paragraph 6 authorized the receiver “to act through and in the name of the Company to

carry out his duties.”29 The same paragraph authorized the receiver “to execute and deliver

(or cause to be executed and delivered) any document in the name of the Company,

including but not limited to contracts, deeds, other documents of title, and regulatory,

administrative and governmental filings.”30

       The order also instructed the Company’s officers and directors to cooperate with the

receiver’s efforts. Paragraph 8 stated:

       The appointment of the Receiver hereunder is binding upon the directors,
       officers, employees, agents and stockholders of the Company, who shall
       cooperate with the Receiver in the performance of his duties. Neither the
       Company, nor [any] person acting or purporting to act on behalf of the
       Company, nor any director, officer, employee, agent, stockholder or creditor
       of the Company shall institute any proceeding in any forum other than this
       Court challenging any action, recommendation or decision by the Receiver.31

Under this paragraph, the Zhongs are obligated to cooperate with the receiver.

E.     The Receiver Takes Control Of The BVI And Hong Kong Subsidiaries

       Using his authority, the receiver petitioned the United States District Court for the

Southern District of New York for the issuance of orders authorizing the receiver to seize

books and records held by the Company’s former CFO, its investor relations firm, and its




       29
            Id. ¶ 6 (the “Authority Paragraph”).
       30
            Id.
       31
            Id. ¶ 8 (the “Cooperation Paragraph”).


                                              10
accountants. On April 16, 2013, the federal court issued the orders, and the receiver

obtained the documents.32

       The receiver next began the difficult process of exercising control over the BVI

Subsidiaries, the Hong Kong Subsidiary, and the Operating Company. The boards of

directors of the BVI Subsidiaries resisted, necessitating efforts to replace those individuals

with directors who would cooperate with the receiver. To facilitate these efforts, the

receiver sought an order confirming his authority to vote the shares of the Company’s direct

and indirect subsidiaries, including to effectuate changes to their respective boards of

directors. By order dated April 19, 2013, I confirmed that the receiver had this authority.33

       Exercising his authority, the receiver replaced the directors of the BVI Subsidiaries

and sought an order from a British Virgin Islands court confirming the validity of his

actions.34 On May 31, 2013, Bo filed a lawsuit in the same court contesting the receiver’s

actions.35 The British Virgin Islands court rejected Bo’s efforts, and on July 25, the Eastern

Caribbean Supreme Court dismissed his challenge.36




       32
            See Dkt. 34 at 3.
       33
            Dkt. 31.
       34
        Dkt. 194 ¶ 3. This docket item contains an Affidavit of Court-Appointed Receiver
Robert W. Seiden, Esq. in Support of Motion for Contempt, cited hereafter as “Seiden Aff.”
       35
            Dkt. 47 at 4; see also Seiden Aff. ¶ 3.
       36
            Dkt. 73 Ex. A.


                                               11
       The receiver next caused the second-tier BVI Subsidiary to exercise its voting power

as the sole stockholder of the Hong Kong Subsidiary to remove Xue Na, the sole director

of the Hong Kong Subsidiary, and appoint new directors. Na refused to recognize the

legitimacy of these actions. To confirm their validity, the receiver caused the Hong Kong

Subsidiary to convene an extraordinary general meeting at which Na was removed and new

directors appointed.37

F.     Na’s Attempt At Intervention

       On August 14, 2013, Na moved to intervene in this action in her individual capacity

as a stockholder of the Company. She sought to modify the orders holding the Company

in contempt and appointing the receiver. She argued that she had standing as a stockholder

to take these steps because the receiver’s actions were harming her. 38 Duane Morris LLP

represented Na. At the time, Duane Morris was serving as counsel to the Company in

several pending matters in other jurisdictions.

       Deutsch and the receiver opposed Na’s motion. They portrayed the motion as a

thinly veiled attempt by the Zhongs to defend the action by proxy after permitting the

Company to default. They argued that the motion should be denied and conditions imposed

on the appearance of any stockholder who sought to represent the Company.39




       37
            Dkt. 40 at 5-6; Seiden Aff. ¶ 4.
       38
            Dkt. 60.
       39
            Dkt. 64.


                                               12
       A hearing on Na’s motion was held on August 23, 2013. I ruled that the Company,

not Na, was the proper party to seek the relief that Na requested and that Na had no standing

to intervene in her capacity as a stockholder. I granted the Company two weeks in which

to appear if it wished to seek the relief that Na had requested. I also held that the Company

should have to satisfy conditions before being able to set aside the default judgment and

litigate the case on the merits, such as paying the expenses that Deutsch and the receiver

had incurred. Rather than imposing conditions unilaterally, I instructed the parties to confer

on appropriate conditions under which the default judgment would be set aside.40

       On September 6, 2013, Duane Morris entered an appearance on behalf of the

Company,41 but the parties were unable to agree on an appropriate set of conditions. 42 On

September 23, I held a status conference.43 Afterwards, the parties engaged in extensive

efforts to reach an amicable resolution that included teleconferences and in-person

meetings,44 but they could not reach agreement.45




       40
            Dkt. 81 at 26-27, 37-39 (transcript).
       41
            Dkt. 77.
       42
            Dkt. 83.
       43
            Dkt. 87.
       44
            See Dkts. 88, 91.
       45
            Dkt. 93.


                                               13
      On November 12, 2013, I entered an Order Establishing Conditions for Defendant’s

Post-Default Judgment Participation in this Action (the “Conditions Order”).46 It provided

that before the Company or any of its affiliates, including Na, Bo, or the Company’s other

directors or officers, could appear and participate in this action, the Company would have

to:

             “[P]rovide [Deutsch] and [the] Receiver with (i) unaudited financial
              statements (i.e., balance sheets and income statements) for the quarter
              ended September 30, 2013 and (ii) audited financial statements for the
              year ended December 31, 2012. On a continuing basis, [the Company]
              shall provide (i) unaudited quarterly and annual financial statements
              within ten calendar days following the end of each such reporting
              period and (ii) audited annual financial statements within a reasonable
              period of time following the end of each reporting year.”47

             “[P]ay to the Receiver the sum of $2,020,000, which sum
              approximates the amount of fees and expenses incurred by the
              Receiver through October 20, 2013, plus interest from that date until
              the date of payment, calculated at the legal rate compounded
              quarterly. In the alternative, [the Company] shall post with the
              Register in Chancery a bond with surety in the amount of $3 million,
              in a form satisfactory to the Court, and [the Company] shall make
              interim payments to the Receiver of $200,000 per month until such
              time as all fees and expenses then due and outstanding are paid in full.
              If [the Company] has posted a bond, then periodically but not more
              frequently, [the Company] may apply to reduce the amount of the
              bond by the amount paid.”48

             “For the purpose of providing security for [the Company’s]
              outstanding debt to [Deutsch] pursuant to the [Put Right] . . . post with




      46
           Dkt. 98.
      47
           Id. ¶ 2.
      48
           Id. ¶ 3.


                                              14
                 the Court a bond with surety, in a form satisfactory to the Court, in
                 the amount of $5 million.”49

The Conditions Order gave the Company until November 29, 2013 to enter an appearance

in compliance with its terms. After that, the Company would be deemed to “again have

waived voluntarily its right to appear and participate in this action . . . [and] be deemed a

non-party for purposes of service and access to documents filed with the Court.” 50 The

Company did not enter an appearance.

G.     Efforts To Sell The Operating Company

       After the parties’ negotiations failed and the Company did not appear, the receiver

decided to try to sell the Hong Kong Subsidiary. In December 2013, he engaged Aegis

Capital Corporation to act as financial advisor in connection with the sale.51

       On December 17, 2013, the receiver moved for the entry of an order establishing

procedures to govern the sale process.52 No one opposed the motion. I held a hearing at

which no one appeared to object. By order dated January 16, 2014, I approved the proposed

sale process.53




       49
            Id. ¶ 4.
       50
            Id. ¶ 5.
       51
            Seiden Aff. ¶ 7; see also Dkt. 129 ¶ 5 (the “Gazdak Aff.”).
       52
            Dkt. 104.
       53
            Dkt. 117.


                                              15
       The receiver carried out a sale process in accordance with the order. His advisors

sent teasers to over forty potential bidders.54 Five potential bidders expressed interest,

entered into nondisclosure agreements, and conducted diligence.55 One bidder submitted a

letter of intent offering to acquire the Hong Kong Subsidiary for $15 million, subject to

due diligence and other conditions.56 One condition required negotiations with Bo, Lin,

and other members of the Operating Company’s management team.57

       In violation of the Cooperation Paragraph in the order appointing the receiver, Bo,

Lin, and the management team did not cooperate with the receiver’s efforts. They refused

to grant any physical access to the Operating Company’s facility or to provide the bidder

with additional financial information.58 In the face of this resistance, the potential buyer

withdrew.

       Undeterred, the receiver engaged Business Development Asia (HK) Ltd., a financial

advisor that specializes in cross-border transactions involving Asian assets. With the

assistance of the new firm, the receiver conducted a new sale process.59 This time,




       54
            Gazdak Aff. ¶¶ 10-11.
       55
            Id. ¶ 12.
       56
            Id. ¶ 14.
       57
            Id. ¶¶ 16-17.
       58
            Seiden Aff. ¶ 7; see also Dkt. 137.
       59
            See Dkt. 147 at 2 & Ex. A.


                                                  16
approximately a dozen parties expressed interest.60 They too wanted current financial

information and cooperation from management.61 Again in violation of the Cooperation

Paragraph, Bo, Lin, and the management team again did not cooperate with the receiver’s

efforts.

       In October 2014, the receiver and Bo met to discuss settlement. Although they did

not reach agreement, the receiver agreed to pause any enforcement efforts pending another

meeting in February 2015.62 That meeting failed to produce an agreement.63

H.     Transfers Of Company Assets

       On June 23, 2015, the Hong Kong Subsidiary passed a resolution (i) removing Bo

as a director and the legal representative of the Operating Company and replacing him with

the receiver’s nominee and (ii) ordering Bo to surrender the Operating Company’s

registration documents and “chops.”64 Bo responded by transferring real estate and other

assets worth approximately $3 million from the Company to Wilke Technology Co. Ltd.,

a company controlled by Lin.65




       60
            Dkt. 150 at 2.
       61
            Id.; Dkt. 153 at 2
       62
            Dkt. 155 at 2.
       63
            See Dkt. 166.
       64
          Seiden Aff. ¶ 9. A company’s “chops” are the Chinese equivalent of a corporate
seal, but have greater significance as a source of legal authority under Chinese law.
       65
            Id.


                                           17
          The receiver sued Bo in China over the transfers.66 On October 27, 2015, the

Chinese court dismissed the lawsuit for failing to comply with certain technical

requirements.67 The dismissal was affirmed in February 2016.68

          In July 2016, the receiver and Bo held a face-to-face meeting in China. After a full

day of negotiations, the parties reached an agreement in principle on the terms for

settlement. But once the receiver returned to the United States, Bo reneged.69

          After the failed negotiations in the summer of 2016, the receiver spent over a year

attempting to apply pressure on Bo through diplomatic channels.70 Those efforts also

failed.

I.        The Contempt Motion

          On January 11, 2018, the receiver moved for a Rule to Show Cause why Bo and Lin

should not be held in contempt for failing to cooperate with the receiver. By order dated

January 19, I entered an order to show cause. It stated:

                1. A hearing (the “Hearing”) shall be held on March 26, 2018 at 2:00
                   p.m. (Eastern) before Vice Chancellor J. Travis Laster, Court of
                   Chancery of the State of Delaware, 500 North King Street,
                   Wilmington, Delaware 19801, at which time Mr. Bo Zhong and Mr.
                   Lin Zhong shall appear and show cause as to why they should not be
                   held in civil and criminal contempt for this Court’s orders pursuant to


          66
               Dkt. 173.
          67
               Dkt. 176.
          68
               Dkt. 179 at 2.
          69
               Dkt. 182.
          70
               See Dkts. 185, 188.


                                                 18
                Court of Chancery Rule 70(b) and Rule 71, and at which time the
                Court may consider such other and further relief as the Court deems
                appropriate and enter an order of civil and criminal contempt;

            2. Mr. Bo Zhong and Mr. Lin Zhong shall submit any papers in response
               to the Receiver’s motion for an order of civil and criminal contempt
               not less than 7 days before the Hearing; and

            3. The Receiver shall forward a copy of this order and the pleadings
               related to the motion to the last known address for [] Mr. Bo Zhong
               and Mr. Lin Zhong, and shall certify to the Court the manner in which
               such notice has been given.71

      The receiver delivered the order and copies of his filings to Bo via email, text

message, and Federal Express.72 Bo’s assistant confirmed that he had received the

documents and had forwarded them to Bo.73 In several communications, Bo told the

receiver that he could not travel abroad to attend the hearing.74 Through his assistant, Bo

subsequently asked the receiver to postpone the hearing.75




      71
         Dkt. 199 ¶¶ 1-3. The Order to Show Cause was granted as proposed by the
Receiver, with a modification to add the date and time of the hearing. This text shows the
Order to Show Cause as modified.
      72
        See Dkt. 205 ¶¶ 3-14. This docket item contains an Affidavit of Zhenling Zhang
in Support of Reply Brief on Motion for Rule to Show Cause, cited hereafter as “Zhang
Aff.”
      73
           Id. ¶ 5 & Ex. A.
      74
           Zhang Aff. ¶¶ 7-9.
      75
           Id. ¶ 13.


                                             19
       On March 19, 2018, the last possible day to respond, counsel entered a limited

appearance on behalf of the Zhongs. Counsel filed a ten-page opposition advancing various

reasons why the Zhongs could not be held in contempt.

                                II.      LEGAL ANALYSIS

       The receiver seeks an order holding the Zhongs in contempt and the issuance of

bench warrants to arrest the Zhongs as a coercive sanction to compel them to comply with

this court’s orders. Courts have inherent authority to impose contempt sanctions for

violations of their orders.76 The power “is essential to the administration of justice.”77 Court

of Chancery Rule 70(a) codifies this court’s inherent authority to enter contempt sanctions.

The rule recognizes that the court may “adjudge [a] party in contempt” if the party “fails

to comply within the time specified” with “a judgment direct[ing] a party to . . . perform

any . . . specific act.”78

       The Zhongs have raised a series of technical and procedural objections to the

receiver’s motion. This decision rejects each of those objections. It nevertheless concludes

that it is premature to issue bench warrants at this time and that the Zhongs will be given

one final chance to comply with this court’s orders.




       76
         DiSabatino v. Salicete, 671 A.3d 1344, 1348 (Del. 1996) (“Courts have ‘an
inherent contempt authority, . . . as a power necessary to the exercise of all others.’”
(quoting United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 831 (1994))).
       77
            Id. (quoting Young v. United States ex rel. Vuitton et Fils, S.A., 481 U.S. 787, 795
(1987)).
       78
            Ct. Ch. R. 70(a).


                                               20
A.     Satisfaction Of The Conditions Order

       As a threshold matter, the receiver contends that the Zhongs cannot appear or make

any submissions without first satisfying the requirements imposed on the Company in the

Conditions Order. The receiver argues that the Zhongs’ filings should be stricken on that

basis. The Zhongs counter with the bold assertion that the Conditions Order violates the

Delaware Constitution and the Constitution of the United States of America.

       Court of Chancery Rule 60(b) authorizes the court to vacate a default judgment

“upon such terms as are just.”79 As Chancellor Chandler noted while writing as a Judge on

the Delaware Superior Court, the power to impose conditions before vacating a default

judgment enables a court to protect a plaintiff by, among other things, “requiring the

defendant to post a bond for the amount of the judgment.”80 Although this court has rarely

exercised this power, federal courts have analyzed frequently the analogous Federal Rule

of Civil Procedure.81 Federal decisions hold that “[t]he imposition of conditions . . . can be

used to rectify any prejudice suffered by the nondefaulting party as a result of the default




       79
            Ct. Ch. R. 60(b).
       80
            Canton Inn, Inc. v. Sec. Ins. Co., 1986 WL 2258, at *2 (Del. Super. Jan. 31, 1986).
       81
          “Decisions interpreting the Federal Rules of Civil Procedure are usually of great
persuasive weight in the construction of parallel Delaware rules; however, such decisions
are not actually binding upon Delaware courts.” Cede & Co. v. Technicolor, Inc., 542 A.2d
1182, 1191 n.11 (Del. 1988) (citation omitted); see also Ross v. Ross, 1994 WL 590494, at
*2 (Del. Oct. 11, 1994) (TABLE) (“Because Rule 60(b) of the Family Court is based on
Rule 60(b) of the Federal Rules of Civil Procedure, the construction of a Federal Rule by
the federal judiciary is given great persuasive weight in the interpretation of a Delaware
counterpart.”).


                                               21
and the subsequent reopening of the litigation.”82 “Accordingly, a number of circuits have

approved of conditioning the vacatur of defaults or default judgments on the posting of

security for payment of all or part of an eventual adjudicated judgment.”83 There is nothing

defective about the Conditions Order, which imposed conceptually similar conditions on

the ability of the Company to appear, vacate the default judgment, and litigate this matter

on the merits.

       The receiver’s motion seeks to impose coercive sanctions on Bo and Lin. The

Conditions Order does not restrict their ability to appear and respond to a motion that is

directed at them. It was the Company that defaulted in this action; the Zhongs did not. In

any event, an appropriate respect for due process means that the Zhongs should have an

opportunity to respond to the receiver’s motion without first satisfying the obligations of

the Company. The Zhongs filings will not be stricken, and they will be able to appear and

defend against any further proceedings related to the receiver’s motion for contempt

against them without first satisfying the requirements of the Conditions Order.




       82
          10A Alan Wright et al., Federal Rules of Civil Procedure § 2700 (4th ed. 2017);
see also Serv. Empls. Int’l Union Nat’l Indus. Pension Fund v. Hamilton Park Health Care
Ctr., Ltd, 304 F.R.D. 65, 71-72 (D.D.C. 2014); Gilmore v. Palestinian Interim Self-Gov’t
Auth., 675 F. Supp. 2d 104, 114 (D.D.C. 2009); Chase Manhattan Bank v. Iridium Africa
Corp., 2004 WL 1588295, at *2 (D. Del. July 8, 2004); Capital Yacht Club v. Vessel
AVIVA, 228 F.R.D. 389, 395 (D.D.C. 2005).
       83
            Powerserve Int’l, Inc. v. Lavi, 239 F.3d 508, 515 (2d Cir. 2001) (collecting cases).


                                               22
B.     The Zhongs’ Non-Party Status

       The Zhongs next argue that because they are not formally parties to this case, they

cannot be held in contempt. That is incorrect. An order generally binds not only the named

parties, but also “those identified with them in interest, in ‘privity’ with them, represented

by them or subject to their control.”84 This doctrine ensures that a party cannot nullify or

evade an order “by carrying out prohibited acts through aiders and abettors, although they

were not parties to the original proceeding.”85 The Court of Chancery Rules recognize that

in appropriate circumstances, an order can be enforced against non-parties.86

       Under these principles, an order that applies to an entity extends to directors,

officers, and employees of the entity who are acting on behalf of the entity.87 This doctrine

recognizes that



       84
            Regal Knitwear Co. v. NLRB, 324 U.S. 9, 14 (1945).
       85
            Id.
       86
         See Ct. Ch. R. 65(d) (recognizing that an order granting an injunction in binding
not only upon the parties but also upon “their officers, agents, servants, employees, and
attorneys, and upon those persons in active concert or participation with them who receive
actual notice of the order by personal service or otherwise”); Ct. Ch. R. 71 (providing that
“when obedience to an order may be lawfully enforced against a person who is not a party,
that person is liable to the same process for enforcing obedience to the order as if that
person were a party”).
       87
         See Fulk v. Wash. Serv. Assocs., Inc., 2002 WL 1402273, at *11 (Del. Ch. June
21, 2002) (holding that the “officers, employees or agents” of the contemnor “will all be
bound by any injunction directed against the current parties”); Arbitrium (Cayman Is.)
Handels AG v. Johnston, 1997 WL 589030, at *4 (Del. Ch. Sept. 17, 1997) (enforcing
order against individuals “in their capacity as agents of the corporation”); accord Nat’l
Spiritual Assembly of Baha’is of U.S. Under Hereditary Guardianship, Inc. v. Nat’l
Spiritual Assembly of Baha’is of the U.S., Inc., 628 F.3d 837, 847 (7th Cir. 2010)
(“[O]fficers, employees, and other agents of an enjoined party must obey the injunction—

                                             23
       [a] command to the corporation is in effect a command to those who are
       officially responsible for the conduct of its affairs. If they, apprised of the
       writ directed to the corporation, prevent compliance or fail to take
       appropriate action within their power for the performance of the corporate
       duty, they, no less than the corporation itself, are guilty of disobedience, and
       may be punished for contempt.88

Put differently, “[a]n order issued to a corporation is identical to an order issued to its

officers, for incorporeal abstractions act through agents.”89

       As a fallback argument, the Zhongs attempt to evade this doctrine through sophistry.

They contend that because this court appointed a receiver with power to act on behalf of

the corporation, and because the Zhongs have been resisting the receiver rather than

colluding with him, they cannot be liable for contempt as agents of the corporation. As the

Zhongs see it, the same order that imposed on them a requirement to cooperate with the

receiver liberated them from having to comply with that obligation because they could no

longer be deemed to be acting on behalf of the Company. In reality, the Zhongs have

continued to exercise actual, real-world control over the Company’s property and have

used that control to resist the authority of the receiver. That is sufficient to make them

subject to a potential finding of contempt.




even though they are not named parties—when they act in their official capacities.”); New
York ex rel. Vacco v. Operation Rescue Nat’l, 80 F.3d 64, 70 (2d Cir. 1996) (“An injunction
issued against a corporation or association binds the agents of that organization to the
extent they are acting on behalf of the organization.”).
       88
            Wilson v. United States, 221 U.S. 361, 376 (1911).
       89
            Reich v. Sea Sprite Boat Co., Inc., 50 F.3d 413, 417 (7th Cir. 1995) (Easterbrook,
J.).


                                               24
C.     Personal Jurisdiction

       The Zhongs also contend that this court lacks personal jurisdiction over them and

therefore cannot hold them in contempt. They point out that a party charged with contempt

“is always at liberty to defend his disregard of the court’s order by showing that the order

was void for lack of jurisdiction.”90 Where, as here, no evidentiary hearing has been held

“the plaintiff bears the burden” of making “a prima facie showing of personal

jurisdiction.”91

       The receiver has made the necessary prima facie showing that the Zhongs are

subject to personal jurisdiction under Section 3114 of Title 10 of the Delaware Code.

Section 3114 contemplates a two-pronged analysis. First, the court must analyze whether

Section 3114 “provides a proper statutory basis” for its exercise of personal jurisdiction.92

Second, it must determine “whether the exercise of personal jurisdiction . . . is consistent

with [the party’s] constitutional expectations of due process.”93

       Section 3114 provides a proper statutory basis for exercising personal jurisdiction

over the Zhongs. Subsection 3114(a) states:

       Every nonresident of this State who after September 1, 1977, accepts election
       or appointment as a director . . . of a corporation organized under the laws of
       this State . . . shall, by such acceptance . . . , be deemed thereby to have
       consented to the appointment of the registered agent of such corporation (or,


       90
            Mayer v. Mayer, 132 A.2d 617, 621 (Del. 1957).
       91
            Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007).
       92
            Hazout v. Tsang Mun Ting, 134 A.3d 274, 292 (Del. 2016).
       93
            Id.


                                              25
       if there is none, the Secretary of State) as an agent upon whom service of
       process may be made in all civil actions or proceedings brought in this State,
       by or on behalf of, or against such corporation, in which such director, trustee
       or member is a necessary or proper party, or in any action or proceeding
       against such director, trustee or member for violation of a duty in such
       capacity, whether or not the person continues to serve as such director, trustee
       or member at the time suit is commenced. Such acceptance or service as such
       director, trustee or member shall be a signification of the consent of such
       director, trustee or member that any process when so served shall be of the
       same legal force and validity as of served upon such director, trustee or
       member within this State and such appointment of the registered agent (or, if
       there is none, the Secretary of State) shall be irrevocable.94

Subsection 3114(b) provides analogous jurisdictional authority for officers of the entity.

       As the Delaware Supreme Court has explained, Section 3114 permits this court to

exercise personal jurisdiction when an officer or director of a corporation “(i) is a

‘necessary or proper party’ to an action against the corporation; or (ii) violated a statutory

or fiduciary duty in his capacity as a director and officer.”95

       The Zhongs are “proper” parties for purposes of the contempt proceedings. A proper

party is one “who may be joined in a case for reasons of judicial economy but whose

presence is not essential to the proceeding.”96 If the Company had complied with this

court’s orders, then contempt proceedings against the Zhongs would not be necessary. At

this point, because the Company has persisted in failing to comply with this court’s orders,

it is proper for the court to consider contempt proceedings against the Zhongs in their



       94
            10 Del. C. § 3114(a).
       95
            Hazout, 134 A.3d at 280.
       96
          Party, Black’s Law Dictionary (10th ed. 2014); see also Hazout, 134 A.3d at 289
n.56 (citing definition).


                                              26
capacities as Company representatives. Indeed, exercising jurisdiction over the Zhongs is

arguably necessary for that purpose. The power to assert jurisdiction therefore exists under

Section 3114.

       Exercising jurisdiction over the Zhongs comports with constitutional due process.

“The focus of this inquiry is whether [the party] engaged in sufficient ‘minimum contacts’

with Delaware to require it to defend itself in the courts of this State consistent with the

traditional notions of fair play and justice.”97 “Once it has been decided that a defendant

purposefully established minimum contacts with the forum State, these contacts must be

considered in light of other factors to determine whether the assertion of personal

jurisdiction would comport with fair play and substantial justice.”98

       In my view, this is not a close call. “By becoming a director and officer of a

Delaware corporation” each of the Zhongs “purposefully availed himself of certain duties

and protections under our law.”99 This action and the potential imposition of contempt

sanctions arises from the Zhongs’ acceptance of those position. The Delaware Supreme

Court explained the implications of these facts when holding that the exercise of personal




       97
         AeroGlobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 440 (Del.
2005) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
       98
         Sternberg v. O’Neil, 550 A.2d 1105, 1122 (Del. 1988) (citing Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 477 (1985)), abrogated on other grounds by Genuine Parts
Co. v. Cepec, 137 A.3d 123 (Del. 2016).
       99
            Hazout, 134 A.3d at 292.


                                            27
jurisdiction under Section 3114 comported with due process for purposes of a derivative

action:

          The instant litigation seeks to hold the defendants accountable to the
          Company for their actions as directors of a Delaware corporation. Their
          status as directors and their power to act in that capacity arise exclusively
          under the Delaware corporation statutes. The defendants accepted their
          directorship with explicit statutory notice, via § 3114, that they could be
          haled into the Delaware Courts to answer for alleged breaches of the duties
          imposed on them by the very laws which empowers them to act in their
          corporate capacities. Moreover, the defendants, by purposefully availing
          themselves of the privilege of becoming directors of a Delaware corporation,
          have thereby accepted significant benefits and protections under the laws of
          this State.100

The same reasoning applies to this case. When they accepted their roles as officers and

directors of a Delaware corporation, the Zhongs were on notice that they could be required

to cause the Company to comply with its obligations under Section 220. It should come as

no surprise that they are now being brought before the Court of Chancery to enforce

compliance. Exercising personal jurisdiction over the Zhongs for purposes of this contempt

proceeding comports with due process.

D.        Other Due Process Concerns

          Separate and apart from personal jurisdiction, the Zhongs advance a series of

arguments in which they contend that they are being denied due process. Although I believe

that the proceedings to date have satisfied the requirements of due process, this decision




          100
                Armstrong v. Pomerance, 423 A.2d 174, 176 (Del. 1980) (citations omitted).


                                                28
requires that the receiver take additional steps before the court will hold the Zhongs in

contempt and issue the requested sanctions.

         1.       The Amount Of Process That Is Due

         The amount of process that an alleged contemnor is due depends on whether the

alleged contemnor faces civil or criminal contempt. “[C]ivil contempt sanctions . . . may

be imposed in an ordinary civil proceeding upon notice and an opportunity to be heard.”101

By contrast, “criminal contempt proceedings must meet the State and Federal

Constitutional requirements for the trial and punishment of crimes.”102

         “The distinction between criminal and civil contempt is often cloudy at best but

there are commonly used parameters for distinguishing the two.” 103 The fact that a party

faces imprisonment as a potential sanction does not mean that the contempt is necessarily

criminal.104 Rather, the distinction turns on the purpose of the sanction and the means of

purging it. “[W]here the primary purpose is to punish, a contempt proceeding is criminal




         101
          Bagwell, 512 U.S. at 827; see also DiSabatinno, 671 A.2d at 1349 (adopting
language).
         102
               DiSabatinno, 671 A.2d at 1349.
         103
               City of Wilmington v. Gen. Teamsters Local Union 326, 321 A.2d 123, 125 (Del.
1974).

          See DiSabattino, 671 A.2d at 1350 (“The sanction of imprisonment can be
         104

imposed for either civil or criminal contempt of court.”); see also 10 Del. C. § 370 (“The
Court of Chancery may enforce obedience to its judgments by imprisonment of the body,
or by sequestration of lands.”).


                                                29
in character and, where the primary purpose is to coerce, it is civil.”105 Issuing an arrest

warrant and confining a party falls under the heading of civil contempt if the court

contemplates “confining [the] contemnor indefinitely until he complies with an affirmative

command.”106 “Conversely, a fixed term of imprisonment is punitive and criminal if it is

imposed retrospectively for a past act of disobedience, and cannot be avoided or abated by

subsequent compliance with the court’s order.”107

       Here, the receiver expressly seeks a finding of civil contempt and the issuance of

arrest warrants as a coercive sanction to compel compliance. He asks that the court arrest

the Zhongs and hold them in custody only until they cause the Company to comply with

this court’s orders. The receiver identifies five ongoing acts by the Zhongs that he asserts

violate the court’s orders:

              Refusing to provide current financial statements of the Company;

              Refusing to turn over control of the property and assets of [the
               Company] and its direct (and indirect) wholly-owned and controlled
               subsidiaries;

              Refusing to reconstitute the Board of Directors; . . .




       105
          Gen. Teamsters Local, 321 A.2d at 125; see also DiSabattino, 671 A.2d at 1349-
50 (“[A] contempt sanction is considered civil if it is remedial, and for the benefit of the
complainant. But if it is for criminal contempt the sentence is punitive, to vindicate the
authority of the court.” (internal quotation marks omitted) (quoting Bagwell, 512 U.S. at
827-28)).
       106
             DiSabattino, 671 A.2d at 1350 (quoting Bagwell, 512 U.S. at 828).
       107
             Id.


                                               30
              Refusing to surrender the corporate seals and change the legal
               representative of the Company[; and] . . .

              Divert[ing] the assets of the Company to a new company that resides
               outside the control of the Receiver, in an attempt to circumvent this
               Court’s orders and the demands of the Receiver.108

Because the requested arrest would only last until the contemptuous conduct ceases, the

receiver seeks only civil contempt. Therefore, due process requires only that the Zhongs

be afforded notice and an opportunity to be heard.

       2.       Notice

       “[P]rior to an action which will affect an interest in life, liberty, or property protected

by the Due Process Clause of the Fourteenth Amendment, a State must provide ‘notice

reasonably calculated, under all circumstances, to apprise interested parties of the pendency

of the action and afford them an opportunity to present their objections.’”109 In the case of

contempt, the notice must inform the alleged contemnor “of the contempt charges and of

the contempt hearing [and] must be explicit.”110 The standard for adequate notice is one of




       108
             Dkt. 197 at 1-2 (formatting altered).
       109
          Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 795 (1983) (quoting Mullane
v. Cent. Hanover Bank & Tr. Co., 399 U.S. 306, 314 (1950)).
       110
             Little v. Kern Cty. Superior Court, 294 F.3d 1075, 1081 (9th Cir. 2002).


                                               31
reasonableness.111 “Adequate notice typically takes the form of a show-cause order and a

notice of hearing identifying each litigant who might be held in contempt.”112

       In my view, the Order to Show Cause already provided adequate notice to the

Zhongs to satisfy due process. It identified the Zhongs as the alleged contemnors and

identified the time and place of the hearing. The receiver provided the Zhongs with the

Order to Show Cause and his supporting brief, which identified all of the alleged acts of

contempt.

       Nonetheless, the circumstances warrant taking an additional step. This proceeding

is unusual because the receiver seeks to hold the Zhongs in contempt of orders which do

not identify the Zhongs by name, and which impose broad mandates rather than specific

demands. For example, the receiver asserts that the Zhongs have violated the Authority

Paragraph, which gives the receiver authority over the Company’s books, records, and




       111
        See Taylor v. Hayes, 418 U.S. 488, 498-99 (1974) (explaining that the alleged
contemnor is entitled to “reasonable notice of the specific charges”).
       112
           Waste Mgmt. of Wash., Inc. v. Kattler, 776 F.3d 336, 340 (5th Cir. 2015). Due
process also requires that the notice be served using means “such as one desirous of actually
informing the absentee might reasonably adopt to accomplish it.” Mullane, 462 U.S. at
314-15. The “amenities of original process need not be followed.” 11A Alan Wright et al.,
Federal Rules of Civil Procedure § 2956 (3d ed. 2018). Notice can be provided “by
personal service or otherwise.” Ct. Ch. R. 65(d) (emphasis added). Here, Bo received actual
notice of the Order to Show Cause with ample time to respond and appear. Due process
does not require more than that. See, e.g., Drywall Tapers & Pointers, Local 1974 v. Local
530, Operative Plasters & Cement Masons Int’l Ass’n, 889 F.2d 389, 396 (2d Cir. 1989)
(holding “Local 530 cannot claim that its due process rights were violated” where it “had
actual notice of the [civil] contempt proceedings”); SEC v. VTR, Inc., 410 F. Supp. 1309,
1314 (D.D.C. 1975) (finding non-party President of civil contemnor “received actual notice
of these proceedings” and therefore “the requirements of due process have been met”).


                                             32
accounts, and the Cooperation Paragraph, which requires that the Zhongs cooperate with

the receiver’s efforts. These provisions establish general obligations, rather than directing

that the Company take particular actions by a specified date. Another factor is the Zhongs’

status as foreign nationals who may not have fully understood that failing to cause the

Company to comply with this court’s orders could place them in personal jeopardy

       In my view, the court would have the authority to impose sanctions on the Zhongs

at this time. Instead, on the facts of this case, the court will issue a more specific order

directing the Zhongs to take the actions that the receiver has identified. This will give the

Zhongs one final opportunity to comply with this court’s orders and avoid the issuance of

bench warrants and the potential for coercive imprisonment. Because the receiver is

invoking this court’s jurisdiction under Section 3114, the receiver shall serve the order in

accordance with that statute, in addition to using the same methods of service used

previously.

       3.       Opportunity To Be Heard

       To satisfy due process, a party facing contempt must receive an opportunity to be

heard “at a meaningful time and in a meaningful manner.”113 In a civil contempt

proceeding, “the charged party is entitled to . . . an impartial hearing[] and an opportunity

to present a defense.”114 “Neither a jury trial nor proof beyond a reasonable doubt is




       113
          Barry v. Barchi, 443 U.S. 55, 66 (1979) (internal quotation marks omitted)
(quoting Armstrong v. Manzo, 380 U.S. 545, 552 (1965)).
       114
             Nabkey v. Hoffius, 827 F. Supp. 450, 452 (W.D. Mich. 1993).


                                             33
required.”115 Here, the Zhongs’ opportunity to brief and argue the receiver’s motion

satisfied their due process rights.

       Nonetheless, I will entertain additional hearings. “In terms of procedural due

process, the Constitution sets a floor, not a ceiling.”116 If the Zhongs fail to comply with

this court’s more specific order, and if the receiver moves for the issuance of bench

warrants, then the Zhongs may appear and oppose that motion. If requested, I will hold an

evidentiary hearing at that time.117 That step is warranted because the receiver’s request for

a coercive sanction of imprisonment requires careful scrutiny.118 In addition, “[c]ontempts

involving out-of-court disobedience to complex injunctions,” such as the ones at issue here,

“often require elaborate and reliable factfinding.”119



       115
             Bagwell, 512 U.S. at 827.
       116
             Robinson v. Gov’t of the D.C., 234 F. Supp. 3d 14, 24 (D.D.C. 2017).
       117
          Cf. Simon v. Navellier Series Fund, 2000 WL 1597890, at *4 (Del. Ch. Oct. 19,
2000) (Strine, V.C.) (noting that for dispositive motions under Court of Chancery 12(b)
“the court has discretion to shape a process that is efficient so long as it affords the parties
a fair opportunity to take discovery and/or to have any relevant factual disputes resolved
after an evidentiary hearing if either is necessary to a fair determination of the motion”);
ASX Inv. Corp. v. Newton, 1994 WL 178147, at *2 (Del. Ch. May 3, 1994) (Allen, C.)
(suggesting desire to hold evidentiary hearing in connection with Court of Chancery Rule
11 sanctions “given the early stage in the proceedings at which the issue arose”).
       118
           See D.G.R. v. R.C., 2007 WL 5158162, at *1 (Del. Fam. Dec. 5, 2007) (“This
Court appreciates the severity of [imprisonment as a] sanction for civil contempt and
employs it only as a last resort.”); Watson v. Givens, 758 A.2d 510, 517 (Del. Fam. 1999)
(“The Court is mindful that with the authority to incarcerate comes the responsibility that
this authority should be used as a last resort and not a first resort to obtain compliance with
the Court’s order.”).
       119
             Bagwell, 512 U.S. at 833-34.


                                              34
                                III.     CONCLUSION

       The receiver shall submit a form of order directing the Zhongs to take or cause the

Company to take specific actions to address the areas that the receiver has identified as

constituting violations of the court’s orders. The order shall give the Zhongs sixty days to

comply. Once entered, the receiver shall give the Zhongs notice of the order by using the

same methods that the receiver has used to date and by additionally serving a copy of the

order as contemplated by Section 3114(c).

       If the Zhongs fail to comply, then the receiver may renew its application for an order

to show cause that would result in the issuance of bench warrants for the Zhongs’ arrest.

The Zhongs may oppose that application. If requested, the court will hold an evidentiary

hearing. In any event, the Zhongs will be able to purge the sanction of coercive

imprisonment at any time by complying with the court’s orders.




                                             35
