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1038-00006 · Calderwood & Harkness LLP · Settlement & Standstill

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MEMORANDUM

TO: Bernard Crawford, Responsible Partner, Labor & Employment

FROM: Devon Archer, Associate, Labor & Employment

DATE: April 3, 2025

RE: Delaware Court of Chancery Precedent on Consent Orders Incorporating Modified Restrictive Covenant Terms — Application to Cascade Retail Holdings Inc. v. Priya Rathore, Derek Linden, Sonia Kaczmarek, Amara Osei, Brent Halvorsen, Lucia Fernandez-Gill, Nathan Tsao, Kira Johansson, and Verdana Commerce Group, Inc., C.A. No. 2025-0198-MTZ

MATTER NO.: 1038-00006

OFFICE: Calderwood & Harkness LLP, 1301 K Street NW, Suite 1200, Washington, DC 20005

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I. Executive Summary

This memorandum analyzes Delaware Court of Chancery law and practice governing the entry, enforceability, and ongoing supervision of consent orders that incorporate negotiated modifications to restrictive covenant obligations. The analysis is undertaken in connection with the proposed Consent Order in Cascade Retail Holdings Inc. v. Priya Rathore, Derek Linden, Sonia Kaczmarek, Amara Osei, Brent Halvorsen, Lucia Fernandez-Gill, Nathan Tsao, Kira Johansson, and Verdana Commerce Group, Inc., C.A. No. 2025-0198-MTZ, currently pending before Vice Chancellor Margaret T. Zhao of the Delaware Court of Chancery.

As background, the parties reached a settlement framework during mediation on March 20, 2025, following extensive arm's-length negotiations facilitated by mediator the Honorable Joseph N. Slights III (ret.). On March 21, 2025, the Court entered a Consent Interim Order maintaining the status quo during the documentation period and directing the parties to finalize and execute a comprehensive Standstill and Settlement Agreement. The target execution date for that agreement is April 14, 2025. Upon execution, the parties intend to file a Stipulation of Settlement and Proposed Consent Order with the Court, incorporating the modified restrictive covenant terms set forth in the Settlement Agreement (to be attached as Exhibit A to the Stipulation).

The key modified terms to be incorporated into the Proposed Consent Order are as follows:

• Rathore Non-Compete: A 12-month non-competition period for Priya Rathore (reduced from the original 18-month contractual period), running from February 7, 2025 through February 6, 2026, limited to three specifically defined product categories: home goods, seasonal décor, and private-label apparel.

• Other Individual Defendants' Non-Competes: A 9-month non-competition period for Derek Linden, Sonia Kaczmarek, Amara Osei, Brent Halvorsen, Lucia Fernandez-Gill, Nathan Tsao, and Kira Johansson (reduced from the original 12- to 18-month contractual periods, depending on each individual's employment agreement), running from February 7, 2025 through November 6, 2025, limited to the same three product categories.

• Employee Non-Solicitation: An 18-month employee non-solicitation covenant applicable to all eight individual defendants, running from February 7, 2025 through August 6, 2026.

• Vendor Non-Solicitation: A 12-month vendor non-solicitation covenant covering CRH's top 50 vendors by annual spend (as identified on the confidential vendor list at Exhibit C to the Settlement Agreement), applicable to all eight individual defendants, running from February 7, 2025 through February 6, 2026.

• Data Return and Destruction: Obligations requiring all eight individual defendants and Verdana Commerce Group, Inc. to return and certify the destruction of all CRH proprietary data within 10 business days of execution of the Settlement Agreement.

• Compliance Monitor: Appointment of Aldwyn Compliance Solutions LLC as an independent compliance monitor for a 12-month term commencing upon execution, with costs shared between Verdana (60%, or $216,000) and CRH (40%, or $144,000), totaling $360,000.

Bottom-Line Conclusion: The Delaware Court of Chancery possesses well-established authority to enter consent orders incorporating modified restrictive covenants negotiated by the parties in settlement of employment and trade secret disputes. Once entered, such orders carry the full force of a judicial decree and are enforceable through civil contempt proceedings, providing CRH with a significantly faster and more powerful enforcement mechanism than would be available through a private settlement agreement alone. Retained jurisdiction is standard practice in the Court of Chancery and is strongly recommended here. The proposed structure of the Consent Order — incorporating the modified restrictive covenant terms directly in the operative paragraphs while also referencing the full Settlement Agreement — is consistent with Chancery precedent and practice and should be approved by Vice Chancellor Zhao without material difficulty, provided the terms are drafted with the specificity and clarity required for contempt enforcement.

II. Scope and Limitations

This memorandum addresses Delaware law exclusively. All eight employment agreements between CRH and the individual defendants are governed by Delaware law, each containing a choice-of-law provision designating the State of Delaware. The memorandum focuses specifically on the procedures, practices, and equitable remedies available in the Delaware Court of Chancery, which has exclusive jurisdiction over this matter as a court of equity. This memorandum does not address the practices of the Delaware Superior Court, the Delaware Supreme Court on appeal, or any federal court, as those forums are not implicated by the current procedural posture of this case.

This memorandum does not constitute a comprehensive survey of the enforceability of restrictive covenants under Delaware common law or statutory law. That analysis was conducted separately in the March 3, 2025 Strengths and Weaknesses Assessment memorandum prepared in connection with the motion for temporary restraining order, as well as in the earlier memoranda dated January 28, 2025 (initial enforceability analysis) and February 12, 2025 (supplemental analysis addressing the blue-pencil doctrine and partial enforcement). Those memoranda should be read in conjunction with this one for a complete picture of CRH's enforcement position. For purposes of this memorandum, the analysis assumes that the modified restrictive covenant terms, as negotiated, are substantively enforceable under Delaware law — a conclusion that is supported by the prior analysis and, indeed, strengthened by the fact that the modifications represent more limited restraints than those found in the original employment agreements.

Finally, this memorandum assumes that the parties will submit a fully executed Standstill and Settlement Agreement with the Proposed Consent Order, attached thereto or incorporated by reference, and that all parties will have been represented by independent counsel at the time of execution. These assumptions are consistent with the settlement framework reached on March 20, 2025, and with the ongoing coordination between Calderwood & Harkness, Whitfield, Nygaard & Doyle LLP (counsel for the Rathore Group), and Blackhall & Soren LLP (counsel for Verdana Commerce Group, Inc.).

III. The Court of Chancery's Authority to Enter Consent Orders

A. Statutory and Inherent Authority

The Delaware Court of Chancery derives its jurisdiction from both constitutional and statutory sources. Article IV, Section 10 of the Delaware Constitution vests the Court of Chancery with "all the jurisdiction and powers vested by the laws of this State" in a court of equity. This grant of authority is implemented through 10 Del. C. § 341, which provides that the Court of Chancery "shall have jurisdiction to hear and determine all matters and causes in equity." The scope of this jurisdiction is expansive and encompasses the full range of equitable remedies recognized at common law and by statute, including injunctive relief, specific performance, and the approval and supervision of consent decrees.

The Court of Chancery's authority to approve and enter consent decrees and stipulated orders is a well-established exercise of its equitable discretion. The Chancery Court has long recognized that settlement of disputes is favored in the law and that the entry of consent orders reflecting negotiated resolutions serves the interests of judicial economy and the sound administration of justice. A consent order entered by the Court of Chancery is an exercise of the Court's adjudicative authority, not merely a ministerial act of filing; the Court's imprimatur transforms the parties' private agreement into a binding judicial decree.

Nevertheless, the Court of Chancery does not rubber-stamp consent orders presented by the parties. The Court retains discretion to review the proposed terms and must satisfy itself that the consent order is fair, reasonable, and not contrary to law or public policy. This standard is less rigorous than the standard applied to class action settlements under Court of Chancery Rule 23, but it is not a nullity. The Court will examine the proposed consent order for clarity, specificity, and workability. The Court will also consider whether the proposed terms would require ongoing judicial involvement beyond what is appropriate given the Court's institutional capacity and docket management responsibilities. For example, a consent order that effectively requires the Court to act as a continuing supervisor of a complex business relationship may be disfavored, whereas a consent order that establishes clear obligations with a defined monitoring mechanism and a finite duration will generally be approved.

In practice, the Court of Chancery routinely enters consent orders in commercial litigation, including cases involving restrictive covenants, trade secrets, and departing employee disputes. Vice Chancellor Zhao herself has entered consent orders in similar matters, and the procedural framework is well understood by the bench and bar. This strongly supports the viability of the proposed approach in the present matter.

B. Consent Orders Distinguished from Private Contracts

A critical distinction that bears directly on CRH's enforcement strategy is the difference between a private settlement agreement and a consent order entered by the Court of Chancery. This distinction is not merely formalistic; it has profound practical implications for the speed, cost, and effectiveness of enforcement.

A consent order, once entered by the Court, has a dual nature. It is simultaneously a contract between the parties — reflecting the meeting of their minds on negotiated terms — and a judicial decree carrying the full authority and coercive power of the Court. This dual nature has been recognized by the Delaware Court of Chancery and affirmed by the Delaware Supreme Court. In the seminal line of Delaware authority on this point, the courts have consistently held that a consent decree is to be construed as a contract for purposes of determining its meaning and scope, but enforced as a judicial order for purposes of determining the remedies available for a violation.

The practical import of this distinction is significant:

• Breach of a private settlement agreement gives rise to a breach-of-contract claim. The aggrieved party must file a new action (or, if the original action is still pending, seek to enforce the settlement agreement within that action), plead the breach, serve process, and proceed through the ordinary litigation process. The movant must prove the elements of a breach-of-contract claim, including the existence of the agreement, the specific obligation breached, and resulting damages. Relief is limited to contract remedies — typically money damages, with specific performance or injunctive relief available only upon a further showing of irreparable harm and the inadequacy of legal remedies.

• Violation of a consent order subjects the violator to contempt proceedings. The aggrieved party may move directly in the existing action before the same Vice Chancellor, on shortened notice, for an order to show cause why the violator should not be held in contempt. The movant need only demonstrate that a valid order existed, that the contemnor had knowledge of it, and that the contemnor violated its terms. The remedies for contempt are broader and more immediately coercive than contract remedies, as discussed in detail in Section VI below.

This distinction is critical to the present matter. Once the modified restrictive covenants are incorporated into a consent order entered by Vice Chancellor Zhao, those covenants become enforceable through the Court's contempt power rather than — or, more precisely, in addition to — through a new breach-of-contract action. This provides CRH with a significantly faster and more powerful enforcement pathway. If, for example, Rathore were to accept employment with a competitor in the home goods category in violation of the consent order, CRH could file a motion for contempt before Vice Chancellor Zhao on the next business day, rather than commencing a new proceeding from scratch. The practical deterrent effect of this enforcement mechanism should not be underestimated, and it is one of the principal reasons why the consent-order structure is preferable to a private settlement standing alone.

C. Voluntary Consent Requirement

The Court of Chancery will enter a consent order only upon a determination that all parties have voluntarily consented to its terms. This requirement reflects fundamental principles of due process and contractual assent. The Court will not enter a consent order where there is any indication that a party's consent was procured through duress, coercion, fraud, or mistake, or where a party does not appear to understand the obligations being imposed.

In practice, the voluntariness requirement is satisfied through the procedural safeguards inherent in the litigation and settlement process, particularly where all parties are represented by competent counsel. The Court of Chancery typically examines the following indicia of voluntariness: (i) whether each party was represented by independent legal counsel during the negotiation and execution of the settlement agreement; (ii) whether the consent order was reviewed by counsel for all parties and approved as to form before submission to the Court; (iii) whether the settlement was reached through an arm's-length negotiation process; and (iv) whether the terms of the consent order are consistent with the parties' stated positions and the posture of the litigation.

In the present matter, all of these indicia are satisfied:

• CRH is represented by Calderwood & Harkness LLP. The eight individual defendants comprising the Rathore Group are represented by Whitfield, Nygaard & Doyle LLP, led by Catherine Nygaard. Verdana Commerce Group, Inc. is represented by Blackhall & Soren LLP, led by Gavin Blackhall. Each party thus has the benefit of independent legal counsel.

• The settlement framework was negotiated at arm's length during a mediation session conducted by a highly respected retired jurist, the Honorable Joseph N. Slights III (ret.), on March 20, 2025.

• The Standstill and Settlement Agreement will be executed by all ten signatories — CRH, the eight individual defendants, and Verdana — each signing individually and, in the case of the corporate parties, through authorized representatives.

• The Proposed Consent Order will be circulated to all three firms for approval as to form before filing.

These circumstances comfortably satisfy the voluntariness requirement. Nevertheless, as a matter of best practice and to forestall any subsequent challenge, I recommend that the Proposed Consent Order include recitals confirming that (i) each party has been advised by independent counsel of record in this action, (ii) each party has reviewed and understands the terms and obligations set forth in the consent order and the Settlement Agreement, (iii) each party enters into the consent order voluntarily and without duress, and (iv) each party acknowledges that a violation of the consent order may subject the violating party to contempt proceedings and sanctions.

IV. Incorporation of Modified Restrictive Covenant Terms

A. Practice of Incorporating Settlement Terms into Consent Orders

The Delaware Court of Chancery regularly enters consent orders that incorporate negotiated modifications to restrictive covenant obligations as part of the resolution of employment disputes, trade secret cases, and related commercial litigation. This practice is well-established and reflects the Court's recognition that the parties to an employment dispute frequently benefit from the certainty and enforceability that a judicial decree provides, even where the underlying dispute has been resolved by agreement.

There are three general approaches to structuring a consent order that incorporates settlement terms:

(a) Full Incorporation by Reference. Under this approach, the consent order is relatively brief. The operative text of the order states that the parties have entered into a settlement agreement, attaches the agreement as an exhibit, and orders that the parties comply with all of the terms and conditions set forth therein. The advantage of this approach is simplicity: the consent order need not reproduce the full text of the settlement agreement. The disadvantage is that the consent order itself may lack the specificity necessary for contempt enforcement, because the Court (and any reviewing judge) must look to the attached exhibit to determine the scope of the obligations.

(b) Direct Incorporation. Under this approach, the consent order sets forth the operative restrictive covenant terms directly in its body, reproducing (or restating) the key obligations in the language of a judicial decree. The advantage of this approach is maximum clarity for enforcement purposes: the contours of the prohibited conduct are set forth on the face of the order. The disadvantage is that the consent order may become lengthy and may not capture all of the ancillary terms of the settlement agreement (e.g., release provisions, confidentiality undertakings, cost-sharing arrangements).

(c) Hybrid Approach. Under this approach, the consent order sets forth the key operative terms directly in its body — particularly those terms that the parties anticipate may need to be enforced through contempt — while also incorporating the full settlement agreement by reference for completeness. This approach provides the clarity and specificity of direct incorporation with the comprehensiveness of full incorporation.

I recommend the hybrid approach for this matter. Specifically, the Proposed Consent Order should set forth the following terms directly in its operative paragraphs: (i) the modified non-competition obligations for each individual defendant, including the scope, duration, and defined product categories; (ii) the employee non-solicitation obligations; (iii) the vendor non-solicitation obligations, with reference to the sealed vendor list; (iv) the data return and destruction obligations, including the deadline and certification mechanism; and (v) the compliance monitor provisions, including the identity of the monitor, the monitoring term, and the reporting obligations. The full Standstill and Settlement Agreement should be attached as Exhibit A and incorporated by reference for all purposes, including with respect to the release provisions, the cost-sharing arrangements, the confidentiality undertakings, and any other terms not expressly set forth in the operative paragraphs of the consent order.

This hybrid approach is the most common and most well-received structure in the Court of Chancery. It provides Vice Chancellor Zhao with a clear and self-contained order that can be enforced through contempt, while preserving the parties' broader settlement framework in its entirety.

B. Specificity Requirements

The Court of Chancery requires that consent orders be drafted with sufficient specificity to be enforceable through contempt proceedings. This requirement is rooted in fundamental principles of due process: a party cannot be held in contempt for violating an order unless the order is sufficiently clear that the party can ascertain from its face exactly what conduct is required or prohibited. Vague or ambiguous consent orders are disfavored and may be unenforceable.

The specificity requirement takes on particular importance in the restrictive covenant context, where the boundaries of permitted and prohibited conduct must be defined with precision. The Court of Chancery has emphasized that an order restraining a party from competing or soliciting must identify, at a minimum, the following: the specific conduct prohibited, the geographic and temporal scope of the prohibition, and the identities of the persons or entities to whom the prohibition applies.

Applying these principles to the present matter, the following drafting requirements should be observed in the Proposed Consent Order:

Product Category Definitions. The three restricted product categories — home goods, seasonal décor, and private-label apparel — must be defined with precision in the consent order itself, not merely by cross-reference to undefined terms or to general industry parlance. The Settlement Agreement is expected to contain detailed definitions of each category. Those definitions should be reproduced in the consent order, either in a definitions section at the beginning of the order or in the operative paragraph establishing the non-competition restriction. For example, "home goods" should be defined to include specific sub-categories (e.g., kitchen and dining, bedding and bath, home storage and organization, home décor and wall art) and to exclude others (e.g., furniture, electronics), to the extent that the parties have agreed on such boundaries. Ambiguity in the product category definitions would undermine the enforceability of the non-competition restrictions and would provide grounds for the defendants to resist a contempt finding.

Duration and Dates. The duration of each restriction must be stated with specific start and end dates. The consent order should not merely recite a "12-month" or "9-month" period; it should identify the calendar dates on which each restriction begins and expires. Based on the settlement framework, the relevant dates are as follows:

• Rathore non-compete: February 7, 2025 through February 6, 2026 (12 months).

• Other seven individual defendants' non-competes: February 7, 2025 through November 6, 2025 (9 months).

• Employee non-solicitation (all eight defendants): February 7, 2025 through August 6, 2026 (18 months).

• Vendor non-solicitation (all eight defendants): February 7, 2025 through February 6, 2026 (12 months).

Each of these dates should be stated explicitly in the consent order to eliminate any ambiguity regarding the duration of the restrictions.

Vendor Non-Solicitation Scope. The scope of the vendor non-solicitation should reference the confidential list of CRH's top 50 vendors by annual spend, which will be attached as Exhibit C to the Settlement Agreement. Because this list contains commercially sensitive information — including vendor identities, spend levels, and in some cases the nature of the commercial relationship — it should be filed under seal. The consent order should refer to the vendors "listed on Exhibit C to the Settlement Agreement, filed under seal," rather than identifying the vendors by name in the public order. This approach maintains the enforceability of the restriction (because the defendants and their counsel will have full access to Exhibit C and will know exactly which vendors are covered) while protecting CRH's confidential vendor relationships from public disclosure.

Data Destruction Obligations. The consent order should specify, with precision, the data return and destruction obligations. This includes: (i) the 10-business-day deadline from the date of execution of the Settlement Agreement; (ii) the specific types of data covered (all CRH proprietary data, including without limitation files, documents, electronic records, databases, spreadsheets, presentations, reports, and any copies, derivatives, or compilations thereof); (iii) the method of destruction (permanent deletion from all devices, systems, cloud storage accounts, and media, using commercially reasonable data destruction methods); (iv) the certification mechanism (each individual defendant and Verdana to provide a sworn certification of compliance, on a form attached as Exhibit D to the Settlement Agreement); and (v) the obligation to cooperate with the independent forensic audit by Pinnacle Forensics LLC. Each of these requirements should be set forth in the consent order with sufficient specificity that a failure to comply would be immediately actionable through contempt.

C. Reasonableness Under Delaware Law

Although the parties have agreed to the modified restrictive covenant terms through arm's-length negotiation, the Court of Chancery retains discretion to review whether the covenants being incorporated into a judicial decree are reasonable. This judicial gatekeeping function reflects the Court's responsibility to ensure that its orders do not impose unreasonable restraints on individuals' ability to earn a livelihood. In practice, however, the standard of review applied to negotiated consent order terms is deferential, particularly where the restraints at issue represent a reduction from the original contractual terms.

Delaware applies a well-established three-part reasonableness test for restrictive covenants arising from employment relationships:

(1) Geographic scope and temporal duration. The restraint must be reasonable in its geographic and temporal reach in light of the employer's legitimate needs and the circumstances of the particular case.

(2) Legitimate business interests. The restraint must be necessary to protect one or more of the employer's legitimate business interests, including trade secrets, confidential information, customer and vendor relationships, and goodwill.

(3) Burden on the employee. The restraint must not be unduly burdensome on the employee, considering the employee's ability to earn a livelihood in the restricted area and the availability of alternative employment opportunities.

The modifications negotiated in the settlement framework satisfy each prong of this test with considerable room to spare:

Temporal Duration. Rathore's non-compete has been reduced from 18 months to 12 months; the other seven defendants' non-competes have been reduced from periods of 12 to 18 months (depending on the individual agreement) to a uniform 9 months. The 18-month employee non-solicitation and 12-month vendor non-solicitation are well within the range of durations routinely upheld by Delaware courts. Indeed, Delaware courts have upheld non-competition periods of 24 months or longer in appropriate circumstances. The negotiated durations here are at or below the midpoint of the range typically found enforceable.

Scope. The original employment agreements contained non-competition covenants that broadly restricted the defendants from competing in "any segment of the retail industry." The modified terms limit the non-competition restriction to three specific product categories: home goods, seasonal décor, and private-label apparel. This categorical limitation substantially narrows the scope of the restriction and permits the defendants to work in the retail industry generally, provided they do not engage in the three categories most closely tied to CRH's confidential strategies and trade secrets. This narrowing should be viewed favorably by the Court.

CRH's Legitimate Protectable Interests. CRH's legitimate business interests in the restricted categories are substantial and well-documented. The merchandising division at issue generated approximately $2.3 billion in gross merchandise value in the most recent fiscal year. The eight individual defendants had access to, and in many cases were responsible for developing, proprietary strategic plans, algorithms, and methodologies including but not limited to: Project Ridgeline (CRH's five-year strategic category expansion plan); proprietary vendor negotiation playbooks; seasonal buying algorithms used to optimize inventory allocation and markdown timing; private-label sourcing strategies covering domestic and international supply chains; and customer segmentation data linking purchasing behavior to category-level profitability metrics. The disclosure or competitive use of any of these assets would cause substantial and irreparable harm to CRH's competitive position.

Evidence of Exfiltration. The legitimacy of CRH's interests is further reinforced by the undisputed evidence that the defendants exfiltrated 14,327 files comprising approximately 2.8 gigabytes of data from CRH's systems in the weeks preceding their collective departure. This evidence, which was developed through the initial forensic analysis conducted by Pinnacle Forensics LLC and submitted in connection with the motion for temporary restraining order, supports the need for ongoing injunctive relief to prevent the use or dissemination of CRH's proprietary information. The consent order mechanism ensures that this relief is backed by the full coercive authority of the Court.

In sum, the modified restrictive covenant terms represent a balanced and reasonable set of restraints that should withstand judicial scrutiny. The fact that they were negotiated at arm's length, with the assistance of a mediator, and represent significant concessions from CRH's original contractual position, further supports a finding of reasonableness.

V. Retained Jurisdiction

A. Standard Practice in the Court of Chancery

It is standard practice for the Delaware Court of Chancery to retain jurisdiction to enforce the terms of a consent order for the duration of the obligations set forth therein. The retention-of-jurisdiction clause is a critical component of any consent order and is typically included in the operative text of the order, often as one of the final paragraphs.

The effect of a retention-of-jurisdiction clause is significant. When the Court retains jurisdiction, any party may return to the Court on shortened notice — typically through an order to show cause or a motion for contempt — to seek enforcement, modification, or clarification of the consent order. The party need not file a new action, obtain new service of process, or proceed through the preliminary stages of a new lawsuit. Instead, the motion is filed in the existing case, on the existing docket, before the same Vice Chancellor who entered the consent order. This procedural efficiency is one of the principal advantages of the consent order mechanism and is a key component of CRH's enforcement strategy.

In the absence of a retention-of-jurisdiction clause, the Court's authority to enforce the consent order may lapse upon the dismissal of the underlying action, requiring the aggrieved party to commence a new proceeding. This would substantially diminish the enforcement advantages that the consent order is designed to provide. Accordingly, the inclusion of a robust retained-jurisdiction clause in the Proposed Consent Order is not merely recommended — it is essential.

B. Duration of Retained Jurisdiction

The retained-jurisdiction clause should specify the duration of the Court's continuing oversight. The duration should be coextensive with the longest-running obligation imposed by the consent order. In this matter, the relevant obligations and their expiration dates are:

• Modified non-compete (Rathore): expires February 6, 2026.

• Modified non-competes (other seven defendants): expire November 6, 2025.

• Employee non-solicitation (all eight defendants): expires August 6, 2026.

• Vendor non-solicitation (all eight defendants): expires February 6, 2026.

• Data return and destruction: 10 business days post-execution (expected late April 2025).

• Compliance monitoring period: 12 months from execution, expected to expire April 14, 2026.

The latest-expiring obligation is the 18-month employee non-solicitation, which runs through August 6, 2026. The compliance monitoring period expires approximately four months earlier, on April 14, 2026. I recommend that the Proposed Consent Order retain jurisdiction through the later of (a) the expiration of all modified restrictive covenant obligations and (b) the conclusion of the compliance monitoring period. In practice, this means that the retained jurisdiction period should extend through August 6, 2026.

The contingent Stipulation for Dismissal with Prejudice should be prepared and executed contemporaneously with the Settlement Agreement, but it should not be filed with the Court until all obligations have been fulfilled and the compliance monitoring period has concluded. The Stipulation should be held in abeyance — either by the Court or by agreement of the parties — and filed only upon the joint certification of the parties (or, in the event of a dispute, upon application to the Court) that all conditions for dismissal have been satisfied. This structure ensures that the Court retains the authority to enforce the consent order throughout the restriction period while providing a clear mechanism for the ultimate resolution and closure of the case.

C. Implications for the Compliance Monitor

The appointment of Aldwyn Compliance Solutions LLC as independent compliance monitor is a central feature of the settlement framework, and the Proposed Consent Order should reference this appointment to give it judicial imprimatur. Specifically, the consent order should address the following:

Identity and Term. The consent order should identify Aldwyn Compliance Solutions LLC by name as the independent compliance monitor and specify the 12-month monitoring term, commencing upon the date of execution of the Settlement Agreement (target April 14, 2025) and expiring on the 12-month anniversary thereof (expected April 14, 2026).

Cost-Sharing. The consent order should reference the cost-sharing arrangement under which Verdana Commerce Group, Inc. bears 60% of the monitoring costs ($216,000) and CRH bears 40% ($144,000), for a total engagement fee of $360,000. While the specific dollar amounts need not be set forth in the operative paragraphs of the consent order (they may be addressed in the Settlement Agreement and incorporated by reference), the basic cost-sharing framework should be referenced to avoid future disputes about the financial obligations associated with the monitor.

Reporting. The consent order should specify that the compliance monitor will prepare quarterly reports on the defendants' compliance with the consent order obligations. These reports should be provided to counsel for all parties and should be made available to the Court upon request or in connection with any enforcement proceeding. The inclusion of this reporting mechanism in the consent order (rather than solely in the Settlement Agreement) ensures that the reports carry the weight of a judicially-sanctioned compliance tool and that the Court has the authority to compel production of the reports if necessary.

Dispute Resolution. The consent order should specify the process for addressing disputes regarding the compliance monitor's findings, access to information, or scope of authority. I recommend that any such disputes be referred to the Court on an expedited briefing schedule — for example, with an initial submission due within five business days and a response due within five business days thereafter — to ensure prompt resolution. This mechanism avoids the risk that disagreements about the monitor's role could be used by the defendants to delay or obstruct the monitoring process.

Cooperation Obligation. The consent order should include an affirmative obligation requiring all individual defendants and Verdana to cooperate fully with the compliance monitor, including by providing access to relevant systems, devices, and records upon reasonable request. Failure to cooperate should be treated as a violation of the consent order, enforceable through contempt.

VI. Contempt as the Primary Enforcement Mechanism

A. Civil Contempt in the Court of Chancery

The primary enforcement mechanism for a consent order entered by the Delaware Court of Chancery is civil contempt. Contempt proceedings in the Court of Chancery are governed by well-established procedural and substantive standards that provide the aggrieved party with a powerful and relatively expeditious remedy for violations.

To establish civil contempt in the Court of Chancery, the moving party must demonstrate by clear and convincing evidence the following three elements:

(1) A valid court order existed. This element is satisfied by the entry of the consent order on the Court's docket. A certified copy of the consent order bearing the Court's signature is ordinarily sufficient to establish this element.

(2) The alleged contemnor had knowledge of the order. This element is typically satisfied by evidence that the consent order was served on the alleged contemnor or on the contemnor's counsel of record. In the present matter, this element will be easily established because all defendants are represented by counsel, all defendants will have executed the Settlement Agreement and consented to the entry of the order, and the consent order will be served on all counsel of record through the Court's electronic filing system.

(3) The alleged contemnor violated the order. The moving party must demonstrate, by clear and convincing evidence, that the alleged contemnor engaged in conduct that constitutes a violation of one or more specific provisions of the consent order. This is where the specificity of the consent order becomes critical: the more precisely the prohibited conduct is defined, the more straightforward it will be to establish a violation.

Once the moving party establishes these three elements, the burden shifts to the alleged contemnor to demonstrate either (a) that the conduct at issue did not, in fact, constitute a violation of the order, or (b) that the contemnor was unable to comply with the order despite good-faith efforts. The "inability to comply" defense is narrow and is generally available only where compliance is literally impossible, not merely inconvenient or costly. In the restrictive covenant context, this defense is rarely successful, because the obligation to refrain from competing or soliciting is typically within the contemnor's control.

B. Remedies Available in Contempt

The Court of Chancery has broad discretion to fashion appropriate remedies upon a finding of civil contempt. The available remedies fall into three principal categories:

Coercive Remedies. Coercive sanctions are designed to compel future compliance with the consent order. They may include daily fines that accrue until the contemnor purges the contempt by coming into compliance, sequestration of assets, or, in extreme cases, incarceration. While incarceration is rare in the commercial dispute context, the theoretical availability of this remedy serves as a powerful deterrent. In the context of the present matter, a daily fine accruing until the contemnor ceases competing in the restricted categories or ceases soliciting covered vendors or employees would be the most likely coercive remedy.

Compensatory Contempt. Compensatory contempt awards are designed to make the aggrieved party whole for losses caused by the violation of the consent order. This may include monetary damages for lost revenues, lost profits, or diminished goodwill resulting from the contemnor's competitive activities. Critically, compensatory contempt may also include the attorneys' fees and costs incurred by the aggrieved party in bringing and prosecuting the contempt proceeding. This fee-shifting mechanism provides an important additional incentive for the defendants to comply with the consent order, because they will bear the financial burden of any enforcement proceeding necessitated by their own violations.

Modification of the Consent Order. In cases where the contemnor's violations demonstrate that the existing terms of the consent order are insufficient to achieve their intended purpose, the Court may modify or tighten the restrictions. For example, if a defendant were found to have violated the non-competition restriction in one product category, the Court could broaden the restriction to additional categories, extend the duration of the restriction, or impose additional monitoring requirements. This modification power provides the Court with flexibility to address evolving circumstances and to ensure that the consent order remains effective.

C. Advantages Over Contract-Based Enforcement

The contempt enforcement mechanism available through the consent order offers several significant advantages over the contract-based enforcement that would be available if CRH relied solely on the private Settlement Agreement:

Speed. Contempt proceedings can be initiated by filing an order to show cause, which may be presented to the Court ex parte on an emergency basis if the circumstances warrant. The Court of Chancery has the authority to schedule expedited briefing and an evidentiary hearing on shortened notice, often within a matter of days or weeks. By contrast, a new breach-of-contract action would require the preparation and filing of a complaint, service of process (which may take weeks if the defendants are not cooperative), the filing of an answer, and the development of a full litigation record before relief can be obtained. The time differential between these two enforcement pathways could be measured in months, a period during which ongoing competitive harm could be inflicted on CRH.

Severity of Sanctions. The threat of contempt sanctions — including daily fines, compensatory awards inclusive of attorneys' fees, and the theoretical possibility of incarceration — provides a more powerful deterrent than the prospect of money damages alone. In a breach-of-contract action, the defendant's maximum exposure is typically limited to the plaintiff's provable damages, which may be difficult to quantify in the trade secret and restrictive covenant context. In a contempt proceeding, the Court's coercive powers are designed to compel compliance, not merely to compensate for past harm, and the contemnor's exposure is open-ended until compliance is achieved.

No Need to Re-Prove Irreparable Harm. In a new action for breach of the Settlement Agreement, CRH would need to seek injunctive relief on an independent basis, which would require a fresh showing of irreparable harm, likelihood of success on the merits, and the balance of equities. In a contempt proceeding based on the consent order, no such showing is required. The consent order itself establishes the Court's equitable authority to restrain the prohibited conduct, and the movant need only prove that a violation has occurred.

Procedural Simplicity. A contempt motion is filed in the existing action, on the existing docket, before the same Vice Chancellor who entered the consent order and who is already familiar with the facts and circumstances of the dispute. There is no need to educate a new judge, develop a new record, or navigate the uncertainties of a new proceeding. This procedural advantage is particularly significant in a complex multi-defendant case such as this one, where the background facts and the dynamics among the parties are already well known to Vice Chancellor Zhao.

Application to This Matter. If any of the eight individual defendants or Verdana Commerce Group, Inc. violates the modified restrictive covenant terms after entry of the Consent Order — for example, by accepting employment with a competitor in the home goods, seasonal décor, or private-label apparel categories; by soliciting CRH employees or covered vendors; or by failing to return or destroy exfiltrated data — CRH can move directly for contempt before Vice Chancellor Zhao, without the delay and expense of filing a new action. This enforcement pathway is substantially faster, more cost-effective, and more likely to result in meaningful relief than any alternative available under contract law alone.

D. Contempt vs. Trade Secret Misappropriation Claims

The data destruction obligations in the consent order provide a particularly important enforcement mechanism in connection with the exfiltrated CRH files. The consent order will require all individual defendants and Verdana to return and certify the destruction of all CRH proprietary data within 10 business days of execution of the Settlement Agreement. Failure to comply with this requirement would constitute a direct violation of the consent order, actionable through contempt.

Separately, the Settlement Agreement contemplates an independent forensic audit of Verdana's systems by Pinnacle Forensics LLC, to be conducted at Verdana's expense subject to a cap of $175,000. This audit is designed to verify that all exfiltrated CRH data has been identified, returned, and destroyed. The consent order should include an obligation requiring Verdana and the individual defendants to cooperate fully with the Pinnacle Forensics audit, including by providing timely access to all devices, systems, servers, cloud storage accounts, and digital media identified by the forensic auditors. A failure to cooperate with the audit — whether through outright refusal, delay, obstruction, or spoliation — should be treated as an independent violation of the consent order, actionable through contempt.

If the forensic audit reveals that CRH data has been retained by any defendant or by Verdana, CRH would have grounds for both (a) contempt of the consent order, based on the failure to comply with the data destruction obligations, and (b) a potential renewed trade secret misappropriation claim under the Delaware Uniform Trade Secrets Act, 6 Del. C. §§ 2001–2009 ("DUTSA"). However, the consent order pathway would be significantly faster and more efficient than a DUTSA claim, because the consent order establishes a clear and specific obligation to destroy the data, and a failure to do so is a straightforward violation of the order. A DUTSA claim, by contrast, would require a separate showing of misappropriation, which involves a more complex factual and legal analysis. Accordingly, if the forensic audit reveals retained data, I recommend pursuing contempt as the primary enforcement mechanism while reserving CRH's DUTSA claims for supplemental relief if necessary.

VII. Sealing and Confidentiality Considerations

A. Presumption of Public Access

The Delaware Court of Chancery, like all Delaware courts, operates under a strong presumption of public access to judicial records. Court of Chancery filings are generally available on the public docket and may be accessed by any member of the public through the Court's electronic filing system. This presumption of openness serves important values of transparency, accountability, and public confidence in the judicial process.

The Stipulation of Settlement and the Consent Order will be public documents. The operative terms of the consent order — including the nature and duration of the restrictive covenants, the identity of the parties, and the general framework of the settlement — will be available to the public. The parties should be aware of this and should ensure that the public-facing documents are drafted appropriately.

B. Grounds for Sealing

Notwithstanding the presumption of public access, the Court of Chancery recognizes that certain categories of information warrant protection from public disclosure. The Court may order the sealing of documents or portions of documents upon a showing of good cause, typically where public disclosure would cause competitive harm or would compromise trade secrets or other confidential commercial information. The Court's authority to seal is exercised on a case-by-case basis, and the party seeking sealing bears the burden of demonstrating that the interests favoring confidentiality outweigh the presumption of public access.

In the present matter, certain exhibits to the Settlement Agreement contain commercially sensitive information that warrants sealing. Most notably:

Exhibit C — List of CRH's Top 50 Vendors by Spend. This exhibit identifies CRH's most significant vendor relationships by name and by annual spend level. The public disclosure of this information would cause substantial competitive harm to CRH by revealing the identity and relative importance of CRH's key supply chain partners to competitors, prospective competitors, and other market participants. Competitors could use this information to target CRH's most important vendor relationships, negotiate more aggressively with those vendors, or seek to disrupt CRH's supply chain. The competitive harm from disclosure would be immediate, concrete, and difficult to remediate.

Potentially Portions of the Settlement Agreement. Certain provisions of the Settlement Agreement may contain proprietary business terms, financial figures, or strategic information that CRH has a legitimate interest in keeping confidential. For example, references to specific vendor negotiation strategies, category-level profitability data, or details of Project Ridgeline may appear in the recitals or definitions of the Settlement Agreement. To the extent such information is included, those portions should be sealed.

I recommend that Calderwood & Harkness file a motion to seal Exhibit C and any other exhibits or portions of exhibits containing trade-secret-level information, contemporaneously with the filing of the Stipulation of Settlement. The motion should be supported by a declaration from a CRH officer — ideally General Counsel Theresa Yun-Park or interim Senior Vice President of Merchandising Martin Cho — establishing the confidential nature of the information, the competitive harm that would result from public disclosure, and the steps CRH has taken to maintain the confidentiality of the information in the ordinary course of its business. The declaration should be specific and detailed; conclusory assertions of harm are insufficient to overcome the presumption of public access.

C. Redacted Public Version

In connection with the motion to seal, a redacted version of the Settlement Agreement should be prepared for the public docket. The redacted version should remove commercially sensitive terms — including specific vendor names, proprietary category definitions, financial figures, and strategic plan details — while preserving the general framework of the settlement so that the public record reflects the nature and scope of the resolution.

The Consent Order itself should be drafted so that its operative provisions are fully comprehensible on the public record without the need to reference sealed information. For example, the vendor non-solicitation provision should refer to "the vendors identified on the list attached as Exhibit C to the Settlement Agreement, filed under seal pursuant to the Court's Order dated [date]," rather than identifying the vendors by name. Similarly, any references to proprietary business information should be drafted at a level of generality sufficient for public disclosure while maintaining the specificity required for contempt enforcement. Where there is tension between these two objectives — specificity for enforcement and generality for public disclosure — the specificity requirement should take priority, and the relevant portions of the consent order should be filed under seal with a redacted public version available on the docket.

VIII. Modification and Dissolution of Consent Orders

A. Standard for Modification

A consent order entered by the Court of Chancery may be modified upon application by any party, but only upon a showing of a significant change in circumstances since the entry of the order. This standard reflects the dual nature of the consent order as both a contract and a judicial decree: the terms are binding on the parties as a matter of contract and on the Court as a matter of judicial administration, and they may not be altered unilaterally or lightly.

The party seeking modification bears the burden of demonstrating that changed circumstances warrant a departure from the agreed-upon terms. The Court will consider whether the change in circumstances was foreseeable at the time the consent order was entered, whether the proposed modification is consistent with the original purposes of the decree, and whether the modification would prejudice the interests of the non-moving party. This is a demanding standard, and motions to modify consent orders are granted sparingly.

In the present matter, the risk of modification requests by the defendants is relatively low, for several reasons. First, the terms of the consent order will reflect a negotiated compromise, reached at arm's length through mediation, in which the defendants obtained significant concessions — most notably, the reduction in the duration and scope of the non-competition restrictions. The defendants will be hard-pressed to argue that circumstances have changed so materially as to justify further modification of terms to which they voluntarily agreed. Second, the remaining duration of the restrictions is relatively short; the shortest-running obligation (the other seven defendants' non-competes) expires on November 6, 2025, less than seven months after the expected entry of the consent order. By the time a modification motion could be briefed and decided, the restriction period may already have expired.

Nevertheless, as a matter of prudent drafting, the Settlement Agreement should include a provision requiring the parties to seek modification of the consent order's terms only through the Court of Chancery, not by private agreement. This requirement preserves the integrity of the judicial decree and ensures that any modification is reviewed and approved by Vice Chancellor Zhao before it takes effect. Without this provision, the defendants could argue that a subsequent private agreement between the parties effectively modified the consent order, creating ambiguity about the scope of the judicially-enforceable obligations.

B. Dissolution Upon Compliance

The Consent Order should specify the mechanism for its dissolution upon the satisfactory completion of all obligations. I recommend the following framework:

(1) Upon the expiration of all restrictive covenant obligations (the latest being the 18-month employee non-solicitation, expiring August 6, 2026) and the successful completion of the 12-month compliance monitoring period (expected to expire April 14, 2026), the parties will jointly file the previously executed Stipulation for Dismissal with Prejudice.

(2) Upon filing of the Stipulation for Dismissal with Prejudice, the Court will enter an order dismissing the action with prejudice and vacating the Consent Order.

(3) In the event of a dispute regarding whether all obligations have been satisfied, any party may apply to the Court (which will have retained jurisdiction through August 6, 2026) for a determination.

This framework provides a clear and orderly path to the conclusion of the case while preserving the Court's authority to resolve any disputes that may arise regarding compliance.

Additionally, upon the entry of the Consent Order, the existing Temporary Restraining Order entered on February 10, 2025, should be dissolved as superseded by the Consent Order. The injunction bond (Bond No. BSC-2025-TRO-04419, in the amount of $2,500,000, issued by Broadview Surety Corp.) should be released upon entry of the Consent Order, as the Consent Order establishes a new and comprehensive framework for injunctive relief that renders the TRO bond unnecessary. We should coordinate with Broadview Surety Corp. to process the release of the bond promptly upon entry of the Consent Order.

IX. Procedural Recommendations for Filing

A. Documents to Be Filed

Based on the foregoing analysis, the following documents should be prepared and filed with the Court of Chancery in connection with the settlement:

1. Stipulation of Settlement and Proposed Consent Order. This is the primary filing, jointly submitted by Calderwood & Harkness LLP (on behalf of CRH), Whitfield, Nygaard & Doyle LLP (on behalf of the Rathore Group), and Blackhall & Soren LLP (on behalf of Verdana Commerce Group, Inc.). The Stipulation will recite the background of the action, the mediation process, the principal terms of the settlement, and the parties' joint request that the Court enter the attached Proposed Consent Order. The fully executed Standstill and Settlement Agreement will be attached as Exhibit A.

2. Proposed Consent Order. The Proposed Consent Order should be submitted as a separate document for the Court's signature. It should be formatted in accordance with the Court of Chancery's filing requirements and should include a signature line for Vice Chancellor Zhao. The order should be submitted in both PDF and editable Word format, as is customary for proposed orders in the Court of Chancery.

3. Joint Letter to Vice Chancellor Zhao. A transmittal letter addressed to Vice Chancellor Zhao, co-signed by counsel for all three groups of parties, providing background on the settlement, summarizing the key terms, and requesting the Court's prompt attention to the filing. The letter should note the April 14, 2025 execution date, the Consent Interim Order entered on March 21, 2025, and the parties' expectation that the Consent Order will supersede the existing TRO.

4. Motion to Dissolve Temporary Restraining Order. A motion seeking the dissolution of the TRO entered on February 10, 2025, upon entry of the Consent Order. This motion should be filed contemporaneously with the Stipulation and should note that the Consent Order provides a comprehensive and agreed-upon framework for injunctive relief that renders the TRO unnecessary.

5. Motion to Seal. A motion to seal Exhibit C (List of CRH's Top 50 Vendors by Spend) and any other confidential exhibits, supported by a declaration from a CRH officer establishing the grounds for sealing. A redacted public version of the relevant documents should be filed simultaneously.

6. Stipulation for Dismissal with Prejudice. The fully executed Stipulation for Dismissal with Prejudice, to be filed with the Court but held in abeyance until all obligations under the Consent Order and Settlement Agreement have been satisfied.

B. Proposed Timeline

The following timeline is recommended for the execution, filing, and post-filing steps:

April 14, 2025 (Target Execution Date):

• Execute the Standstill and Settlement Agreement (all ten signatories).

• File the Stipulation of Settlement and Proposed Consent Order with the Court of Chancery.

• File the Motion to Dissolve Temporary Restraining Order.

• File the Motion to Seal Exhibit C and other confidential exhibits.

• Submit the Stipulation for Dismissal with Prejudice (to be held in abeyance).

Upon Entry of the Consent Order (expected within days of filing, subject to the Court's schedule):

• Serve the entered Consent Order on all parties and counsel of record.

• Request release of the injunction bond (Bond No. BSC-2025-TRO-04419, $2,500,000) from Broadview Surety Corp.

• Commence the 10-business-day data destruction deadline.

• Formally engage Aldwyn Compliance Solutions LLC

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressee and other authorized personnel at Calderwood & Harkness LLP and authorized representatives of Cascade Retail Holdings Inc. Any unauthorized review, use, disclosure, or distribution is strictly prohibited.
MEMORANDUM
TO: Bernard Crawford, Responsible Partner, Labor & Employment
FROM: Devon Archer, Associate, Labor & Employment
DATE: April 3, 2025
RE: Delaware Court of Chancery Precedent on Consent Orders Incorporating Modified Restrictive Covenant Terms — Application to Cascade Retail Holdings Inc. v. Priya Rathore, Derek Linden, Sonia Kaczmarek, Amara Osei, Brent Halvorsen, Lucia Fernandez-Gill, Nathan Tsao, Kira Johansson, and Verdana Commerce Group, Inc., C.A. No. 2025-0198-MTZ
MATTER NO.: 1038-00006
OFFICE: Calderwood & Harkness LLP, 1301 K Street NW, Suite 1200, Washington, DC 20005
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I. Executive Summary
This memorandum analyzes Delaware Court of Chancery law and practice governing the entry, enforceability, and ongoing supervision of consent orders that incorporate negotiated modifications to restrictive covenant obligations. The analysis is undertaken in connection with the proposed Consent Order in Cascade Retail Holdings Inc. v. Priya Rathore, Derek Linden, Sonia Kaczmarek, Amara Osei, Brent Halvorsen, Lucia Fernandez-Gill, Nathan Tsao, Kira Johansson, and Verdana Commerce Group, Inc., C.A. No. 2025-0198-MTZ, currently pending before Vice Chancellor Margaret T. Zhao of the Delaware Court of Chancery.
As background, the parties reached a settlement framework during mediation on March 20, 2025, following extensive arm's-length negotiations facilitated by mediator the Honorable Joseph N. Slights III (ret.). On March 21, 2025, the Court entered a Consent Interim Order maintaining the status quo during the documentation period and directing the parties to finalize and execute a comprehensive Standstill and Settlement Agreement. The target execution date for that agreement is April 14, 2025. Upon execution, the parties intend to file a Stipulation of Settlement and Proposed Consent Order with the Court, incorporating the modified restrictive covenant terms set forth in the Settlement Agreement (to be attached as Exhibit A to the Stipulation).
The key modified terms to be incorporated into the Proposed Consent Order are as follows:
• Rathore Non-Compete: A 12-month non-competition period for Priya Rathore (reduced from the original 18-month contractual period), running from February 7, 2025 through February 6, 2026, limited to three specifically defined product categories: home goods, seasonal décor, and private-label apparel.
• Other Individual Defendants' Non-Competes: A 9-month non-competition period for Derek Linden, Sonia Kaczmarek, Amara Osei, Brent Halvorsen, Lucia Fernandez-Gill, Nathan Tsao, and Kira Johansson (reduced from the original 12- to 18-month contractual periods, depending on each individual's employment agreement), running from February 7, 2025 through November 6, 2025, limited to the same three product categories.
• Employee Non-Solicitation: An 18-month employee non-solicitation covenant applicable to all eight individual defendants, running from February 7, 2025 through August 6, 2026.
• Vendor Non-Solicitation: A 12-month vendor non-solicitation covenant covering CRH's top 50 vendors by annual spend (as identified on the confidential vendor list at Exhibit C to the Settlement Agreement), applicable to all eight individual defendants, running from February 7, 2025 through February 6, 2026.
• Data Return and Destruction: Obligations requiring all eight individual defendants and Verdana Commerce Group, Inc. to return and certify the destruction of all CRH proprietary data within 10 business days of execution of the Settlement Agreement.
• Compliance Monitor: Appointment of Aldwyn Compliance Solutions LLC as an independent compliance monitor for a 12-month term commencing upon execution, with costs shared between Verdana (60%, or $216,000) and CRH (40%, or $144,000), totaling $360,000.
Bottom-Line Conclusion: The Delaware Court of Chancery possesses well-established authority to enter consent orders incorporating modified restrictive covenants negotiated by the parties in settlement of employment and trade secret disputes. Once entered, such orders carry the full force of a judicial decree and are enforceable through civil contempt proceedings, providing CRH with a significantly faster and more powerful enforcement mechanism than would be available through a private settlement agreement alone. Retained jurisdiction is standard practice in the Court of Chancery and is strongly recommended here. The proposed structure of the Consent Order — incorporating the modified restrictive covenant terms directly in the operative paragraphs while also referencing the full Settlement Agreement — is consistent with Chancery precedent and practice and should be approved by Vice Chancellor Zhao without material difficulty, provided the terms are drafted with the specificity and clarity required for contempt enforcement.
II. Scope and Limitations
This memorandum addresses Delaware law exclusively. All eight employment agreements between CRH and the individual defendants are governed by Delaware law, each containing a choice-of-law provision designating the State of Delaware. The memorandum focuses specifically on the procedures, practices, and equitable remedies available in the Delaware Court of Chancery, which has exclusive jurisdiction over this matter as a court of equity. This memorandum does not address the practices of the Delaware Superior Court, the Delaware Supreme Court on appeal, or any federal court, as those forums are not implicated by the current procedural posture of this case.
This memorandum does not constitute a comprehensive survey of the enforceability of restrictive covenants under Delaware common law or statutory law. That analysis was conducted separately in the March 3, 2025 Strengths and Weaknesses Assessment memorandum prepared in connection with the motion for temporary restraining order, as well as in the earlier memoranda dated January 28, 2025 (initial enforceability analysis) and February 12, 2025 (supplemental analysis addressing the blue-pencil doctrine and partial enforcement). Those memoranda should be read in conjunction with this one for a complete picture of CRH's enforcement position. For purposes of this memorandum, the analysis assumes that the modified restrictive covenant terms, as negotiated, are substantively enforceable under Delaware law — a conclusion that is supported by the prior analysis and, indeed, strengthened by the fact that the modifications represent more limited restraints than those found in the original employment agreements.
Finally, this memorandum assumes that the parties will submit a fully executed Standstill and Settlement Agreement with the Proposed Consent Order, attached thereto or incorporated by reference, and that all parties will have been represented by independent counsel at the time of execution. These assumptions are consistent with the settlement framework reached on March 20, 2025, and with the ongoing coordination between Calderwood & Harkness, Whitfield, Nygaard & Doyle LLP (counsel for the Rathore Group), and Blackhall & Soren LLP (counsel for Verdana Commerce Group, Inc.).
III. The Court of Chancery's Authority to Enter Consent Orders
A. Statutory and Inherent Authority
The Delaware Court of Chancery derives its jurisdiction from both constitutional and statutory sources. Article IV, Section 10 of the Delaware Constitution vests the Court of Chancery with "all the jurisdiction and powers vested by the laws of this State" in a court of equity. This grant of authority is implemented through 10 Del. C. § 341, which provides that the Court of Chancery "shall have jurisdiction to hear and determine all matters and causes in equity." The scope of this jurisdiction is expansive and encompasses the full range of equitable remedies recognized at common law and by statute, including injunctive relief, specific performance, and the approval and supervision of consent decrees.
The Court of Chancery's authority to approve and enter consent decrees and stipulated orders is a well-established exercise of its equitable discretion. The Chancery Court has long recognized that settlement of disputes is favored in the law and that the entry of consent orders reflecting negotiated resolutions serves the interests of judicial economy and the sound administration of justice. A consent order entered by the Court of Chancery is an exercise of the Court's adjudicative authority, not merely a ministerial act of filing; the Court's imprimatur transforms the parties' private agreement into a binding judicial decree.
Nevertheless, the Court of Chancery does not rubber-stamp consent orders presented by the parties. The Court retains discretion to review the proposed terms and must satisfy itself that the consent order is fair, reasonable, and not contrary to law or public policy. This standard is less rigorous than the standard applied to class action settlements under Court of Chancery Rule 23, but it is not a nullity. The Court will examine the proposed consent order for clarity, specificity, and workability. The Court will also consider whether the proposed terms would require ongoing judicial involvement beyond what is appropriate given the Court's institutional capacity and docket management responsibilities. For example, a consent order that effectively requires the Court to act as a continuing supervisor of a complex business relationship may be disfavored, whereas a consent order that establishes clear obligations with a defined monitoring mechanism and a finite duration will generally be approved.
In practice, the Court of Chancery routinely enters consent orders in commercial litigation, including cases involving restrictive covenants, trade secrets, and departing employee disputes. Vice Chancellor Zhao herself has entered consent orders in similar matters, and the procedural framework is well understood by the bench and bar. This strongly supports the viability of the proposed approach in the present matter.
B. Consent Orders Distinguished from Private Contracts
A critical distinction that bears directly on CRH's enforcement strategy is the difference between a private settlement agreement and a consent order entered by the Court of Chancery. This distinction is not merely formalistic; it has profound practical implications for the speed, cost, and effectiveness of enforcement.
A consent order, once entered by the Court, has a dual nature. It is simultaneously a contract between the parties — reflecting the meeting of their minds on negotiated terms — and a judicial decree carrying the full authority and coercive power of the Court. This dual nature has been recognized by the Delaware Court of Chancery and affirmed by the Delaware Supreme Court. In the seminal line of Delaware authority on this point, the courts have consistently held that a consent decree is to be construed as a contract for purposes of determining its meaning and scope, but enforced as a judicial order for purposes of determining the remedies available for a violation.
The practical import of this distinction is significant:
• Breach of a private settlement agreement gives rise to a breach-of-contract claim. The aggrieved party must file a new action (or, if the original action is still pending, seek to enforce the settlement agreement within that action), plead the breach, serve process, and proceed through the ordinary litigation process. The movant must prove the elements of a breach-of-contract claim, including the existence of the agreement, the specific obligation breached, and resulting damages. Relief is limited to contract remedies — typically money damages, with specific performance or injunctive relief available only upon a further showing of irreparable harm and the inadequacy of legal remedies.
• Violation of a consent order subjects the violator to contempt proceedings. The aggrieved party may move directly in the existing action before the same Vice Chancellor, on shortened notice, for an order to show cause why the violator should not be held in contempt. The movant need only demonstrate that a valid order existed, that the contemnor had knowledge of it, and that the contemnor violated its terms. The remedies for contempt are broader and more immediately coercive than contract remedies, as discussed in detail in Section VI below.
This distinction is critical to the present matter. Once the modified restrictive covenants are incorporated into a consent order entered by Vice Chancellor Zhao, those covenants become enforceable through the Court's contempt power rather than — or, more precisely, in addition to — through a new breach-of-contract action. This provides CRH with a significantly faster and more powerful enforcement pathway. If, for example, Rathore were to accept employment with a competitor in the home goods category in violation of the consent order, CRH could file a motion for contempt before Vice Chancellor Zhao on the next business day, rather than commencing a new proceeding from scratch. The practical deterrent effect of this enforcement mechanism should not be underestimated, and it is one of the principal reasons why the consent-order structure is preferable to a private settlement standing alone.
C. Voluntary Consent Requirement
The Court of Chancery will enter a consent order only upon a determination that all parties have voluntarily consented to its terms. This requirement reflects fundamental principles of due process and contractual assent. The Court will not enter a consent order where there is any indication that a party's consent was procured through duress, coercion, fraud, or mistake, or where a party does not appear to understand the obligations being imposed.
In practice, the voluntariness requirement is satisfied through the procedural safeguards inherent in the litigation and settlement process, particularly where all parties are represented by competent counsel. The Court of Chancery typically examines the following indicia of voluntariness: (i) whether each party was represented by independent legal counsel during the negotiation and execution of the settlement agreement; (ii) whether the consent order was reviewed by counsel for all parties and approved as to form before submission to the Court; (iii) whether the settlement was reached through an arm's-length negotiation process; and (iv) whether the terms of the consent order are consistent with the parties' stated positions and the posture of the litigation.
In the present matter, all of these indicia are satisfied:
• CRH is represented by Calderwood & Harkness LLP. The eight individual defendants comprising the Rathore Group are represented by Whitfield, Nygaard & Doyle LLP, led by Catherine Nygaard. Verdana Commerce Group, Inc. is represented by Blackhall & Soren LLP, led by Gavin Blackhall. Each party thus has the benefit of independent legal counsel.
• The settlement framework was negotiated at arm's length during a mediation session conducted by a highly respected retired jurist, the Honorable Joseph N. Slights III (ret.), on March 20, 2025.
• The Standstill and Settlement Agreement will be executed by all ten signatories — CRH, the eight individual defendants, and Verdana — each signing individually and, in the case of the corporate parties, through authorized representatives.
• The Proposed Consent Order will be circulated to all three firms for approval as to form before filing.
These circumstances comfortably satisfy the voluntariness requirement. Nevertheless, as a matter of best practice and to forestall any subsequent challenge, I recommend that the Proposed Consent Order include recitals confirming that (i) each party has been advised by independent counsel of record in this action, (ii) each party has reviewed and understands the terms and obligations set forth in the consent order and the Settlement Agreement, (iii) each party enters into the consent order voluntarily and without duress, and (iv) each party acknowledges that a violation of the consent order may subject the violating party to contempt proceedings and sanctions.
IV. Incorporation of Modified Restrictive Covenant Terms
A. Practice of Incorporating Settlement Terms into Consent Orders
The Delaware Court of Chancery regularly enters consent orders that incorporate negotiated modifications to restrictive covenant obligations as part of the resolution of employment disputes, trade secret cases, and related commercial litigation. This practice is well-established and reflects the Court's recognition that the parties to an employment dispute frequently benefit from the certainty and enforceability that a judicial decree provides, even where the underlying dispute has been resolved by agreement.
There are three general approaches to structuring a consent order that incorporates settlement terms:
(a) Full Incorporation by Reference. Under this approach, the consent order is relatively brief. The operative text of the order states that the parties have entered into a settlement agreement, attaches the agreement as an exhibit, and orders that the parties comply with all of the terms and conditions set forth therein. The advantage of this approach is simplicity: the consent order need not reproduce the full text of the settlement agreement. The disadvantage is that the consent order itself may lack the specificity necessary for contempt enforcement, because the Court (and any reviewing judge) must look to the attached exhibit to determine the scope of the obligations.
(b) Direct Incorporation. Under this approach, the consent order sets forth the operative restrictive covenant terms directly in its body, reproducing (or restating) the key obligations in the language of a judicial decree. The advantage of this approach is maximum clarity for enforcement purposes: the contours of the prohibited conduct are set forth on the face of the order. The disadvantage is that the consent order may become lengthy and may not capture all of the ancillary terms of the settlement agreement (e.g., release provisions, confidentiality undertakings, cost-sharing arrangements).
(c) Hybrid Approach. Under this approach, the consent order sets forth the key operative terms directly in its body — particularly those terms that the parties anticipate may need to be enforced through contempt — while also incorporating the full settlement agreement by reference for completeness. This approach provides the clarity and specificity of direct incorporation with the comprehensiveness of full incorporation.
I recommend the hybrid approach for this matter. Specifically, the Proposed Consent Order should set forth the following terms directly in its operative paragraphs: (i) the modified non-competition obligations for each individual defendant, including the scope, duration, and defined product categories; (ii) the employee non-solicitation obligations; (iii) the vendor non-solicitation obligations, with reference to the sealed vendor list; (iv) the data return and destruction obligations, including the deadline and certification mechanism; and (v) the compliance monitor provisions, including the identity of the monitor, the monitoring term, and the reporting obligations. The full Standstill and Settlement Agreement should be attached as Exhibit A and incorporated by reference for all purposes, including with respect to the release provisions, the cost-sharing arrangements, the confidentiality undertakings, and any other terms not expressly set forth in the operative paragraphs of the consent order.
This hybrid approach is the most common and most well-received structure in the Court of Chancery. It provides Vice Chancellor Zhao with a clear and self-contained order that can be enforced through contempt, while preserving the parties' broader settlement framework in its entirety.
B. Specificity Requirements
The Court of Chancery requires that consent orders be drafted with sufficient specificity to be enforceable through contempt proceedings. This requirement is rooted in fundamental principles of due process: a party cannot be held in contempt for violating an order unless the order is sufficiently clear that the party can ascertain from its face exactly what conduct is required or prohibited. Vague or ambiguous consent orders are disfavored and may be unenforceable.
The specificity requirement takes on particular importance in the restrictive covenant context, where the boundaries of permitted and prohibited conduct must be defined with precision. The Court of Chancery has emphasized that an order restraining a party from competing or soliciting must identify, at a minimum, the following: the specific conduct prohibited, the geographic and temporal scope of the prohibition, and the identities of the persons or entities to whom the prohibition applies.
Applying these principles to the present matter, the following drafting requirements should be observed in the Proposed Consent Order:
Product Category Definitions. The three restricted product categories — home goods, seasonal décor, and private-label apparel — must be defined with precision in the consent order itself, not merely by cross-reference to undefined terms or to general industry parlance. The Settlement Agreement is expected to contain detailed definitions of each category. Those definitions should be reproduced in the consent order, either in a definitions section at the beginning of the order or in the operative paragraph establishing the non-competition restriction. For example, "home goods" should be defined to include specific sub-categories (e.g., kitchen and dining, bedding and bath, home storage and organization, home décor and wall art) and to exclude others (e.g., furniture, electronics), to the extent that the parties have agreed on such boundaries. Ambiguity in the product category definitions would undermine the enforceability of the non-competition restrictions and would provide grounds for the defendants to resist a contempt finding.
Duration and Dates. The duration of each restriction must be stated with specific start and end dates. The consent order should not merely recite a "12-month" or "9-month" period; it should identify the calendar dates on which each restriction begins and expires. Based on the settlement framework, the relevant dates are as follows:
• Rathore non-compete: February 7, 2025 through February 6, 2026 (12 months).
• Other seven individual defendants' non-competes: February 7, 2025 through November 6, 2025 (9 months).
• Employee non-solicitation (all eight defendants): February 7, 2025 through August 6, 2026 (18 months).
• Vendor non-solicitation (all eight defendants): February 7, 2025 through February 6, 2026 (12 months).
Each of these dates should be stated explicitly in the consent order to eliminate any ambiguity regarding the duration of the restrictions.
Vendor Non-Solicitation Scope. The scope of the vendor non-solicitation should reference the confidential list of CRH's top 50 vendors by annual spend, which will be attached as Exhibit C to the Settlement Agreement. Because this list contains commercially sensitive information — including vendor identities, spend levels, and in some cases the nature of the commercial relationship — it should be filed under seal. The consent order should refer to the vendors "listed on Exhibit C to the Settlement Agreement, filed under seal," rather than identifying the vendors by name in the public order. This approach maintains the enforceability of the restriction (because the defendants and their counsel will have full access to Exhibit C and will know exactly which vendors are covered) while protecting CRH's confidential vendor relationships from public disclosure.
Data Destruction Obligations. The consent order should specify, with precision, the data return and destruction obligations. This includes: (i) the 10-business-day deadline from the date of execution of the Settlement Agreement; (ii) the specific types of data covered (all CRH proprietary data, including without limitation files, documents, electronic records, databases, spreadsheets, presentations, reports, and any copies, derivatives, or compilations thereof); (iii) the method of destruction (permanent deletion from all devices, systems, cloud storage accounts, and media, using commercially reasonable data destruction methods); (iv) the certification mechanism (each individual defendant and Verdana to provide a sworn certification of compliance, on a form attached as Exhibit D to the Settlement Agreement); and (v) the obligation to cooperate with the independent forensic audit by Pinnacle Forensics LLC. Each of these requirements should be set forth in the consent order with sufficient specificity that a failure to comply would be immediately actionable through contempt.
C. Reasonableness Under Delaware Law
Although the parties have agreed to the modified restrictive covenant terms through arm's-length negotiation, the Court of Chancery retains discretion to review whether the covenants being incorporated into a judicial decree are reasonable. This judicial gatekeeping function reflects the Court's responsibility to ensure that its orders do not impose unreasonable restraints on individuals' ability to earn a livelihood. In practice, however, the standard of review applied to negotiated consent order terms is deferential, particularly where the restraints at issue represent a reduction from the original contractual terms.
Delaware applies a well-established three-part reasonableness test for restrictive covenants arising from employment relationships:
(1) Geographic scope and temporal duration. The restraint must be reasonable in its geographic and temporal reach in light of the employer's legitimate needs and the circumstances of the particular case.
(2) Legitimate business interests. The restraint must be necessary to protect one or more of the employer's legitimate business interests, including trade secrets, confidential information, customer and vendor relationships, and goodwill.
(3) Burden on the employee. The restraint must not be unduly burdensome on the employee, considering the employee's ability to earn a livelihood in the restricted area and the availability of alternative employment opportunities.
The modifications negotiated in the settlement framework satisfy each prong of this test with considerable room to spare:
Temporal Duration. Rathore's non-compete has been reduced from 18 months to 12 months; the other seven defendants' non-competes have been reduced from periods of 12 to 18 months (depending on the individual agreement) to a uniform 9 months. The 18-month employee non-solicitation and 12-month vendor non-solicitation are well within the range of durations routinely upheld by Delaware courts. Indeed, Delaware courts have upheld non-competition periods of 24 months or longer in appropriate circumstances. The negotiated durations here are at or below the midpoint of the range typically found enforceable.
Scope. The original employment agreements contained non-competition covenants that broadly restricted the defendants from competing in "any segment of the retail industry." The modified terms limit the non-competition restriction to three specific product categories: home goods, seasonal décor, and private-label apparel. This categorical limitation substantially narrows the scope of the restriction and permits the defendants to work in the retail industry generally, provided they do not engage in the three categories most closely tied to CRH's confidential strategies and trade secrets. This narrowing should be viewed favorably by the Court.
CRH's Legitimate Protectable Interests. CRH's legitimate business interests in the restricted categories are substantial and well-documented. The merchandising division at issue generated approximately $2.3 billion in gross merchandise value in the most recent fiscal year. The eight individual defendants had access to, and in many cases were responsible for developing, proprietary strategic plans, algorithms, and methodologies including but not limited to: Project Ridgeline (CRH's five-year strategic category expansion plan); proprietary vendor negotiation playbooks; seasonal buying algorithms used to optimize inventory allocation and markdown timing; private-label sourcing strategies covering domestic and international supply chains; and customer segmentation data linking purchasing behavior to category-level profitability metrics. The disclosure or competitive use of any of these assets would cause substantial and irreparable harm to CRH's competitive position.
Evidence of Exfiltration. The legitimacy of CRH's interests is further reinforced by the undisputed evidence that the defendants exfiltrated 14,327 files comprising approximately 2.8 gigabytes of data from CRH's systems in the weeks preceding their collective departure. This evidence, which was developed through the initial forensic analysis conducted by Pinnacle Forensics LLC and submitted in connection with the motion for temporary restraining order, supports the need for ongoing injunctive relief to prevent the use or dissemination of CRH's proprietary information. The consent order mechanism ensures that this relief is backed by the full coercive authority of the Court.
In sum, the modified restrictive covenant terms represent a balanced and reasonable set of restraints that should withstand judicial scrutiny. The fact that they were negotiated at arm's length, with the assistance of a mediator, and represent significant concessions from CRH's original contractual position, further supports a finding of reasonableness.
V. Retained Jurisdiction
A. Standard Practice in the Court of Chancery
It is standard practice for the Delaware Court of Chancery to retain jurisdiction to enforce the terms of a consent order for the duration of the obligations set forth therein. The retention-of-jurisdiction clause is a critical component of any consent order and is typically included in the operative text of the order, often as one of the final paragraphs.
The effect of a retention-of-jurisdiction clause is significant. When the Court retains jurisdiction, any party may return to the Court on shortened notice — typically through an order to show cause or a motion for contempt — to seek enforcement, modification, or clarification of the consent order. The party need not file a new action, obtain new service of process, or proceed through the preliminary stages of a new lawsuit. Instead, the motion is filed in the existing case, on the existing docket, before the same Vice Chancellor who entered the consent order. This procedural efficiency is one of the principal advantages of the consent order mechanism and is a key component of CRH's enforcement strategy.
In the absence of a retention-of-jurisdiction clause, the Court's authority to enforce the consent order may lapse upon the dismissal of the underlying action, requiring the aggrieved party to commence a new proceeding. This would substantially diminish the enforcement advantages that the consent order is designed to provide. Accordingly, the inclusion of a robust retained-jurisdiction clause in the Proposed Consent Order is not merely recommended — it is essential.
B. Duration of Retained Jurisdiction
The retained-jurisdiction clause should specify the duration of the Court's continuing oversight. The duration should be coextensive with the longest-running obligation imposed by the consent order. In this matter, the relevant obligations and their expiration dates are:
• Modified non-compete (Rathore): expires February 6, 2026.
• Modified non-competes (other seven defendants): expire November 6, 2025.
• Employee non-solicitation (all eight defendants): expires August 6, 2026.
• Vendor non-solicitation (all eight defendants): expires February 6, 2026.
• Data return and destruction: 10 business days post-execution (expected late April 2025).
• Compliance monitoring period: 12 months from execution, expected to expire April 14, 2026.
The latest-expiring obligation is the 18-month employee non-solicitation, which runs through August 6, 2026. The compliance monitoring period expires approximately four months earlier, on April 14, 2026. I recommend that the Proposed Consent Order retain jurisdiction through the later of (a) the expiration of all modified restrictive covenant obligations and (b) the conclusion of the compliance monitoring period. In practice, this means that the retained jurisdiction period should extend through August 6, 2026.
The contingent Stipulation for Dismissal with Prejudice should be prepared and executed contemporaneously with the Settlement Agreement, but it should not be filed with the Court until all obligations have been fulfilled and the compliance monitoring period has concluded. The Stipulation should be held in abeyance — either by the Court or by agreement of the parties — and filed only upon the joint certification of the parties (or, in the event of a dispute, upon application to the Court) that all conditions for dismissal have been satisfied. This structure ensures that the Court retains the authority to enforce the consent order throughout the restriction period while providing a clear mechanism for the ultimate resolution and closure of the case.
C. Implications for the Compliance Monitor
The appointment of Aldwyn Compliance Solutions LLC as independent compliance monitor is a central feature of the settlement framework, and the Proposed Consent Order should reference this appointment to give it judicial imprimatur. Specifically, the consent order should address the following:
Identity and Term. The consent order should identify Aldwyn Compliance Solutions LLC by name as the independent compliance monitor and specify the 12-month monitoring term, commencing upon the date of execution of the Settlement Agreement (target April 14, 2025) and expiring on the 12-month anniversary thereof (expected April 14, 2026).
Cost-Sharing. The consent order should reference the cost-sharing arrangement under which Verdana Commerce Group, Inc. bears 60% of the monitoring costs ($216,000) and CRH bears 40% ($144,000), for a total engagement fee of $360,000. While the specific dollar amounts need not be set forth in the operative paragraphs of the consent order (they may be addressed in the Settlement Agreement and incorporated by reference), the basic cost-sharing framework should be referenced to avoid future disputes about the financial obligations associated with the monitor.
Reporting. The consent order should specify that the compliance monitor will prepare quarterly reports on the defendants' compliance with the consent order obligations. These reports should be provided to counsel for all parties and should be made available to the Court upon request or in connection with any enforcement proceeding. The inclusion of this reporting mechanism in the consent order (rather than solely in the Settlement Agreement) ensures that the reports carry the weight of a judicially-sanctioned compliance tool and that the Court has the authority to compel production of the reports if necessary.
Dispute Resolution. The consent order should specify the process for addressing disputes regarding the compliance monitor's findings, access to information, or scope of authority. I recommend that any such disputes be referred to the Court on an expedited briefing schedule — for example, with an initial submission due within five business days and a response due within five business days thereafter — to ensure prompt resolution. This mechanism avoids the risk that disagreements about the monitor's role could be used by the defendants to delay or obstruct the monitoring process.
Cooperation Obligation. The consent order should include an affirmative obligation requiring all individual defendants and Verdana to cooperate fully with the compliance monitor, including by providing access to relevant systems, devices, and records upon reasonable request. Failure to cooperate should be treated as a violation of the consent order, enforceable through contempt.
VI. Contempt as the Primary Enforcement Mechanism
A. Civil Contempt in the Court of Chancery
The primary enforcement mechanism for a consent order entered by the Delaware Court of Chancery is civil contempt. Contempt proceedings in the Court of Chancery are governed by well-established procedural and substantive standards that provide the aggrieved party with a powerful and relatively expeditious remedy for violations.
To establish civil contempt in the Court of Chancery, the moving party must demonstrate by clear and convincing evidence the following three elements:
(1) A valid court order existed. This element is satisfied by the entry of the consent order on the Court's docket. A certified copy of the consent order bearing the Court's signature is ordinarily sufficient to establish this element.
(2) The alleged contemnor had knowledge of the order. This element is typically satisfied by evidence that the consent order was served on the alleged contemnor or on the contemnor's counsel of record. In the present matter, this element will be easily established because all defendants are represented by counsel, all defendants will have executed the Settlement Agreement and consented to the entry of the order, and the consent order will be served on all counsel of record through the Court's electronic filing system.
(3) The alleged contemnor violated the order. The moving party must demonstrate, by clear and convincing evidence, that the alleged contemnor engaged in conduct that constitutes a violation of one or more specific provisions of the consent order. This is where the specificity of the consent order becomes critical: the more precisely the prohibited conduct is defined, the more straightforward it will be to establish a violation.
Once the moving party establishes these three elements, the burden shifts to the alleged contemnor to demonstrate either (a) that the conduct at issue did not, in fact, constitute a violation of the order, or (b) that the contemnor was unable to comply with the order despite good-faith efforts. The "inability to comply" defense is narrow and is generally available only where compliance is literally impossible, not merely inconvenient or costly. In the restrictive covenant context, this defense is rarely successful, because the obligation to refrain from competing or soliciting is typically within the contemnor's control.
B. Remedies Available in Contempt
The Court of Chancery has broad discretion to fashion appropriate remedies upon a finding of civil contempt. The available remedies fall into three principal categories:
Coercive Remedies. Coercive sanctions are designed to compel future compliance with the consent order. They may include daily fines that accrue until the contemnor purges the contempt by coming into compliance, sequestration of assets, or, in extreme cases, incarceration. While incarceration is rare in the commercial dispute context, the theoretical availability of this remedy serves as a powerful deterrent. In the context of the present matter, a daily fine accruing until the contemnor ceases competing in the restricted categories or ceases soliciting covered vendors or employees would be the most likely coercive remedy.
Compensatory Contempt. Compensatory contempt awards are designed to make the aggrieved party whole for losses caused by the violation of the consent order. This may include monetary damages for lost revenues, lost profits, or diminished goodwill resulting from the contemnor's competitive activities. Critically, compensatory contempt may also include the attorneys' fees and costs incurred by the aggrieved party in bringing and prosecuting the contempt proceeding. This fee-shifting mechanism provides an important additional incentive for the defendants to comply with the consent order, because they will bear the financial burden of any enforcement proceeding necessitated by their own violations.
Modification of the Consent Order. In cases where the contemnor's violations demonstrate that the existing terms of the consent order are insufficient to achieve their intended purpose, the Court may modify or tighten the restrictions. For example, if a defendant were found to have violated the non-competition restriction in one product category, the Court could broaden the restriction to additional categories, extend the duration of the restriction, or impose additional monitoring requirements. This modification power provides the Court with flexibility to address evolving circumstances and to ensure that the consent order remains effective.
C. Advantages Over Contract-Based Enforcement
The contempt enforcement mechanism available through the consent order offers several significant advantages over the contract-based enforcement that would be available if CRH relied solely on the private Settlement Agreement:
Speed. Contempt proceedings can be initiated by filing an order to show cause, which may be presented to the Court ex parte on an emergency basis if the circumstances warrant. The Court of Chancery has the authority to schedule expedited briefing and an evidentiary hearing on shortened notice, often within a matter of days or weeks. By contrast, a new breach-of-contract action would require the preparation and filing of a complaint, service of process (which may take weeks if the defendants are not cooperative), the filing of an answer, and the development of a full litigation record before relief can be obtained. The time differential between these two enforcement pathways could be measured in months, a period during which ongoing competitive harm could be inflicted on CRH.
Severity of Sanctions. The threat of contempt sanctions — including daily fines, compensatory awards inclusive of attorneys' fees, and the theoretical possibility of incarceration — provides a more powerful deterrent than the prospect of money damages alone. In a breach-of-contract action, the defendant's maximum exposure is typically limited to the plaintiff's provable damages, which may be difficult to quantify in the trade secret and restrictive covenant context. In a contempt proceeding, the Court's coercive powers are designed to compel compliance, not merely to compensate for past harm, and the contemnor's exposure is open-ended until compliance is achieved.
No Need to Re-Prove Irreparable Harm. In a new action for breach of the Settlement Agreement, CRH would need to seek injunctive relief on an independent basis, which would require a fresh showing of irreparable harm, likelihood of success on the merits, and the balance of equities. In a contempt proceeding based on the consent order, no such showing is required. The consent order itself establishes the Court's equitable authority to restrain the prohibited conduct, and the movant need only prove that a violation has occurred.
Procedural Simplicity. A contempt motion is filed in the existing action, on the existing docket, before the same Vice Chancellor who entered the consent order and who is already familiar with the facts and circumstances of the dispute. There is no need to educate a new judge, develop a new record, or navigate the uncertainties of a new proceeding. This procedural advantage is particularly significant in a complex multi-defendant case such as this one, where the background facts and the dynamics among the parties are already well known to Vice Chancellor Zhao.
Application to This Matter. If any of the eight individual defendants or Verdana Commerce Group, Inc. violates the modified restrictive covenant terms after entry of the Consent Order — for example, by accepting employment with a competitor in the home goods, seasonal décor, or private-label apparel categories; by soliciting CRH employees or covered vendors; or by failing to return or destroy exfiltrated data — CRH can move directly for contempt before Vice Chancellor Zhao, without the delay and expense of filing a new action. This enforcement pathway is substantially faster, more cost-effective, and more likely to result in meaningful relief than any alternative available under contract law alone.
D. Contempt vs. Trade Secret Misappropriation Claims
The data destruction obligations in the consent order provide a particularly important enforcement mechanism in connection with the exfiltrated CRH files. The consent order will require all individual defendants and Verdana to return and certify the destruction of all CRH proprietary data within 10 business days of execution of the Settlement Agreement. Failure to comply with this requirement would constitute a direct violation of the consent order, actionable through contempt.
Separately, the Settlement Agreement contemplates an independent forensic audit of Verdana's systems by Pinnacle Forensics LLC, to be conducted at Verdana's expense subject to a cap of $175,000. This audit is designed to verify that all exfiltrated CRH data has been identified, returned, and destroyed. The consent order should include an obligation requiring Verdana and the individual defendants to cooperate fully with the Pinnacle Forensics audit, including by providing timely access to all devices, systems, servers, cloud storage accounts, and digital media identified by the forensic auditors. A failure to cooperate with the audit — whether through outright refusal, delay, obstruction, or spoliation — should be treated as an independent violation of the consent order, actionable through contempt.
If the forensic audit reveals that CRH data has been retained by any defendant or by Verdana, CRH would have grounds for both (a) contempt of the consent order, based on the failure to comply with the data destruction obligations, and (b) a potential renewed trade secret misappropriation claim under the Delaware Uniform Trade Secrets Act, 6 Del. C. §§ 2001–2009 ("DUTSA"). However, the consent order pathway would be significantly faster and more efficient than a DUTSA claim, because the consent order establishes a clear and specific obligation to destroy the data, and a failure to do so is a straightforward violation of the order. A DUTSA claim, by contrast, would require a separate showing of misappropriation, which involves a more complex factual and legal analysis. Accordingly, if the forensic audit reveals retained data, I recommend pursuing contempt as the primary enforcement mechanism while reserving CRH's DUTSA claims for supplemental relief if necessary.
VII. Sealing and Confidentiality Considerations
A. Presumption of Public Access
The Delaware Court of Chancery, like all Delaware courts, operates under a strong presumption of public access to judicial records. Court of Chancery filings are generally available on the public docket and may be accessed by any member of the public through the Court's electronic filing system. This presumption of openness serves important values of transparency, accountability, and public confidence in the judicial process.
The Stipulation of Settlement and the Consent Order will be public documents. The operative terms of the consent order — including the nature and duration of the restrictive covenants, the identity of the parties, and the general framework of the settlement — will be available to the public. The parties should be aware of this and should ensure that the public-facing documents are drafted appropriately.
B. Grounds for Sealing
Notwithstanding the presumption of public access, the Court of Chancery recognizes that certain categories of information warrant protection from public disclosure. The Court may order the sealing of documents or portions of documents upon a showing of good cause, typically where public disclosure would cause competitive harm or would compromise trade secrets or other confidential commercial information. The Court's authority to seal is exercised on a case-by-case basis, and the party seeking sealing bears the burden of demonstrating that the interests favoring confidentiality outweigh the presumption of public access.
In the present matter, certain exhibits to the Settlement Agreement contain commercially sensitive information that warrants sealing. Most notably:
Exhibit C — List of CRH's Top 50 Vendors by Spend. This exhibit identifies CRH's most significant vendor relationships by name and by annual spend level. The public disclosure of this information would cause substantial competitive harm to CRH by revealing the identity and relative importance of CRH's key supply chain partners to competitors, prospective competitors, and other market participants. Competitors could use this information to target CRH's most important vendor relationships, negotiate more aggressively with those vendors, or seek to disrupt CRH's supply chain. The competitive harm from disclosure would be immediate, concrete, and difficult to remediate.
Potentially Portions of the Settlement Agreement. Certain provisions of the Settlement Agreement may contain proprietary business terms, financial figures, or strategic information that CRH has a legitimate interest in keeping confidential. For example, references to specific vendor negotiation strategies, category-level profitability data, or details of Project Ridgeline may appear in the recitals or definitions of the Settlement Agreement. To the extent such information is included, those portions should be sealed.
I recommend that Calderwood & Harkness file a motion to seal Exhibit C and any other exhibits or portions of exhibits containing trade-secret-level information, contemporaneously with the filing of the Stipulation of Settlement. The motion should be supported by a declaration from a CRH officer — ideally General Counsel Theresa Yun-Park or interim Senior Vice President of Merchandising Martin Cho — establishing the confidential nature of the information, the competitive harm that would result from public disclosure, and the steps CRH has taken to maintain the confidentiality of the information in the ordinary course of its business. The declaration should be specific and detailed; conclusory assertions of harm are insufficient to overcome the presumption of public access.
C. Redacted Public Version
In connection with the motion to seal, a redacted version of the Settlement Agreement should be prepared for the public docket. The redacted version should remove commercially sensitive terms — including specific vendor names, proprietary category definitions, financial figures, and strategic plan details — while preserving the general framework of the settlement so that the public record reflects the nature and scope of the resolution.
The Consent Order itself should be drafted so that its operative provisions are fully comprehensible on the public record without the need to reference sealed information. For example, the vendor non-solicitation provision should refer to "the vendors identified on the list attached as Exhibit C to the Settlement Agreement, filed under seal pursuant to the Court's Order dated [date]," rather than identifying the vendors by name. Similarly, any references to proprietary business information should be drafted at a level of generality sufficient for public disclosure while maintaining the specificity required for contempt enforcement. Where there is tension between these two objectives — specificity for enforcement and generality for public disclosure — the specificity requirement should take priority, and the relevant portions of the consent order should be filed under seal with a redacted public version available on the docket.
VIII. Modification and Dissolution of Consent Orders
A. Standard for Modification
A consent order entered by the Court of Chancery may be modified upon application by any party, but only upon a showing of a significant change in circumstances since the entry of the order. This standard reflects the dual nature of the consent order as both a contract and a judicial decree: the terms are binding on the parties as a matter of contract and on the Court as a matter of judicial administration, and they may not be altered unilaterally or lightly.
The party seeking modification bears the burden of demonstrating that changed circumstances warrant a departure from the agreed-upon terms. The Court will consider whether the change in circumstances was foreseeable at the time the consent order was entered, whether the proposed modification is consistent with the original purposes of the decree, and whether the modification would prejudice the interests of the non-moving party. This is a demanding standard, and motions to modify consent orders are granted sparingly.
In the present matter, the risk of modification requests by the defendants is relatively low, for several reasons. First, the terms of the consent order will reflect a negotiated compromise, reached at arm's length through mediation, in which the defendants obtained significant concessions — most notably, the reduction in the duration and scope of the non-competition restrictions. The defendants will be hard-pressed to argue that circumstances have changed so materially as to justify further modification of terms to which they voluntarily agreed. Second, the remaining duration of the restrictions is relatively short; the shortest-running obligation (the other seven defendants' non-competes) expires on November 6, 2025, less than seven months after the expected entry of the consent order. By the time a modification motion could be briefed and decided, the restriction period may already have expired.
Nevertheless, as a matter of prudent drafting, the Settlement Agreement should include a provision requiring the parties to seek modification of the consent order's terms only through the Court of Chancery, not by private agreement. This requirement preserves the integrity of the judicial decree and ensures that any modification is reviewed and approved by Vice Chancellor Zhao before it takes effect. Without this provision, the defendants could argue that a subsequent private agreement between the parties effectively modified the consent order, creating ambiguity about the scope of the judicially-enforceable obligations.
B. Dissolution Upon Compliance
The Consent Order should specify the mechanism for its dissolution upon the satisfactory completion of all obligations. I recommend the following framework:
(1) Upon the expiration of all restrictive covenant obligations (the latest being the 18-month employee non-solicitation, expiring August 6, 2026) and the successful completion of the 12-month compliance monitoring period (expected to expire April 14, 2026), the parties will jointly file the previously executed Stipulation for Dismissal with Prejudice.
(2) Upon filing of the Stipulation for Dismissal with Prejudice, the Court will enter an order dismissing the action with prejudice and vacating the Consent Order.
(3) In the event of a dispute regarding whether all obligations have been satisfied, any party may apply to the Court (which will have retained jurisdiction through August 6, 2026) for a determination.
This framework provides a clear and orderly path to the conclusion of the case while preserving the Court's authority to resolve any disputes that may arise regarding compliance.
Additionally, upon the entry of the Consent Order, the existing Temporary Restraining Order entered on February 10, 2025, should be dissolved as superseded by the Consent Order. The injunction bond (Bond No. BSC-2025-TRO-04419, in the amount of $2,500,000, issued by Broadview Surety Corp.) should be released upon entry of the Consent Order, as the Consent Order establishes a new and comprehensive framework for injunctive relief that renders the TRO bond unnecessary. We should coordinate with Broadview Surety Corp. to process the release of the bond promptly upon entry of the Consent Order.
IX. Procedural Recommendations for Filing
A. Documents to Be Filed
Based on the foregoing analysis, the following documents should be prepared and filed with the Court of Chancery in connection with the settlement:
1. Stipulation of Settlement and Proposed Consent Order. This is the primary filing, jointly submitted by Calderwood & Harkness LLP (on behalf of CRH), Whitfield, Nygaard & Doyle LLP (on behalf of the Rathore Group), and Blackhall & Soren LLP (on behalf of Verdana Commerce Group, Inc.). The Stipulation will recite the background of the action, the mediation process, the principal terms of the settlement, and the parties' joint request that the Court enter the attached Proposed Consent Order. The fully executed Standstill and Settlement Agreement will be attached as Exhibit A.
2. Proposed Consent Order. The Proposed Consent Order should be submitted as a separate document for the Court's signature. It should be formatted in accordance with the Court of Chancery's filing requirements and should include a signature line for Vice Chancellor Zhao. The order should be submitted in both PDF and editable Word format, as is customary for proposed orders in the Court of Chancery.
3. Joint Letter to Vice Chancellor Zhao. A transmittal letter addressed to Vice Chancellor Zhao, co-signed by counsel for all three groups of parties, providing background on the settlement, summarizing the key terms, and requesting the Court's prompt attention to the filing. The letter should note the April 14, 2025 execution date, the Consent Interim Order entered on March 21, 2025, and the parties' expectation that the Consent Order will supersede the existing TRO.
4. Motion to Dissolve Temporary Restraining Order. A motion seeking the dissolution of the TRO entered on February 10, 2025, upon entry of the Consent Order. This motion should be filed contemporaneously with the Stipulation and should note that the Consent Order provides a comprehensive and agreed-upon framework for injunctive relief that renders the TRO unnecessary.
5. Motion to Seal. A motion to seal Exhibit C (List of CRH's Top 50 Vendors by Spend) and any other confidential exhibits, supported by a declaration from a CRH officer establishing the grounds for sealing. A redacted public version of the relevant documents should be filed simultaneously.
6. Stipulation for Dismissal with Prejudice. The fully executed Stipulation for Dismissal with Prejudice, to be filed with the Court but held in abeyance until all obligations under the Consent Order and Settlement Agreement have been satisfied.
B. Proposed Timeline
The following timeline is recommended for the execution, filing, and post-filing steps:
April 14, 2025 (Target Execution Date):
• Execute the Standstill and Settlement Agreement (all ten signatories).
• File the Stipulation of Settlement and Proposed Consent Order with the Court of Chancery.
• File the Motion to Dissolve Temporary Restraining Order.
• File the Motion to Seal Exhibit C and other confidential exhibits.
• Submit the Stipulation for Dismissal with Prejudice (to be held in abeyance).
Upon Entry of the Consent Order (expected within days of filing, subject to the Court's schedule):
• Serve the entered Consent Order on all parties and counsel of record.
• Request release of the injunction bond (Bond No. BSC-2025-TRO-04419, $2,500,000) from Broadview Surety Corp.
• Commence the 10-business-day data destruction deadline.
• Formally engage Aldwyn Compliance Solutions LLC

MEMORANDUM

MATTER NO.: 1038-00006

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