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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 11 posts in Advancement.
Chancery Refuses to Impose Additional Conditions on Voluntary Dismissal of Claims Subject to Advancement
Sal Gilbertie, et al. v. Dale Riker, et al., C.A. No. 2020-1018-LWW (Del. Ch.)
The Delaware Court of Chancery frequently hears advancement disputes, wherein officers or directors of Delaware entities seek to enforce their right to the ongoing payment of legal fees in the defense of claims brought against them. Sometimes, as in this case, a plaintiff entity moves to voluntarily dismiss its claims rather than to pay the freight for both sides. Here, the plaintiffs sought to dismiss the pending claims subject to advancement with prejudice after the Court granted the defendants advancement in a separate action. The defendants opposed the plaintiffs’ motion and sought to impose additional conditions on any dismissal under the Court of Chancery rule governing voluntary, court-approved dismissals, including conditions related to advancement and a finding that the defendants had prevailed on the merits. The Court rejected the defendants’ requests because the advancement relief could be considered under the controlling Fitracks order, and any characterization was premature given the remaining counterclaims. Thus, the Court granted the voluntary motion to dismiss without any conditions.
Court Of Chancery Affirms Arbitration Order And Denies Motion For Preliminary Injunction Based On The Preclusive Effect Of The Order
Agspring LLC v. NGP X US Holdings L.P., C.A. No. 2019-1021-JRS (Del. Ch. Jan. 19, 2022); Agspring LLC v. NGP X US Holdings L.P., C.A. No. 2019-0567-JRS (Del. Ch. Jan. 19, 2022)
Delaware follows the rule that an arbitrator’s award is “not lightly disturbed.” Accordingly, the applicable standard of review is “one of the narrowest standards of judicial review in all American jurisprudence.” To overturn an arbitrator’s order, a court must find that the arbitrator acted in “manifest disregard” of the law. More ›
Chancery Addresses Indemnification Claim Turning on the Contractual Definition of a Covered Person
GMF ELCM Fund L.P., et al. v. ELCM HCRE GP LLC, et al., C.A. No. 2018-0840-SG (Del. CH. Sept. 22, 2021)
This indemnification dispute arose out of an alternative entity dissolution proceeding involving a health care business. The claimant was a former employee of an entity within the web of entities implicated in the case. He sought indemnification from several entities for his defense of third-party claims in a separate litigation, from which he was dismissed. After the liquidating trustee objected to his claim, the claimant sought to enforce his rights in the Delaware dissolution proceeding. More ›
Chancery Stays Advancement Action in Favor of Pending Related Federal Action
The Harmon 1999 Descendants’ Trust v. CGH Investment Management, LLC, C.A. No. 2021-0407-KSJM (Sept. 21, 2021)
Generally, absent unusual circumstances, claims for advancement will not be stayed or dismissed in favor of prior pending litigation. At issue, in this case, was whether the plaintiff was a limited partner or agent of the partnership, which would render the plaintiff a covered person under the agreement and entitle the plaintiff to advancement. However, whether the plaintiff was a limited partner was squarely before a Virginia federal court. The Court of Chancery found that the issue of whether the plaintiff was a limited partner was “a material, factually rife, and disputed issue.” The Virginia action was also in its “penultimate phase,” with trial set less than three months away, and likely was going to resolve the issue before the Court of Chancery could rule. Therefore, the court stayed the Delaware advancement action in favor of the pending Virginia action, finding it would avoid wasting judicial resources, risking inconsistent results, and disrespecting principles of comity.
Chancery Rules Corporation Cannot Offset Wife’s Recoupment Against Husband’s Advancement Simply Because the Pair Signed a Single Undertaking
Perryman v. Stimwave Tech. Inc., C.A. 2020-0079-SG (Del. Ch. Apr. 15, 2021)
Section 145 of DGCL permits corporations to grant advancement rights to persons who may be entitled to indemnification so that they may fund covered litigation costs pending indemnification. As part of this right, the DGCL also requires these individuals to undertake to repay the corporation if the advanced expenses ultimately prove not to be indemnifiable. In this case, the Court clarifies that two individuals who are married and execute the same undertaking nonetheless retain their individual rights to advancement and separate obligations for repaying any non-indemnifiable expenses. More ›
Chancery Finds Company Responsible for Advancing Costs of Defense to Its CEO in a Claim Brought by the Company
The Delaware Limited Liability Company Act (the “LLC Act”) allows a limited liability company (“LLC”) to provide for indemnification as to “any and all claims and demands whatsoever” against an LLC manager or officer, “[s]ubject to such standards and restrictions, if any, as are set forth in [the] limited liability company agreement.” 6 Del. C. § 18-108. The statute prescribes that the LLC agreement may indemnify any person to the fullest extent possible by contract. The only restrictions are those expressly set forth in the relevant LLC contract provisions. An LLC agreement is construed in accordance with Delaware law regarding contract interpretation. More ›
ShareCCLD Finds Insurer’s Advancement Obligation Triggered Prior to Final Non-Appealable Damages Judgment
The Superior Court of Delaware, Complex Commercial Litigation Division recently expanded on its advancement jurisprudence regarding litigation fees and costs due under director and officer insurance policies. The insured brought a declaratory judgment action against two insurers in a tower of coverage. Judge Mary M. Johnston declared, on summary judgment, that the insured was entitled to advancement of reasonable attorneys’ fees and costs from one of the insurers. More ›
ShareChancery Declines to Follow Transcript Ruling, Finds Plaintiff is Entitled to Advancement of Fees Incurred in Underlying Action Pre-Undertaking
Day v. Diligence, Inc., C.A. No. 2020-0076-SG (Del. Ch. May 7, 2020)
By letter ruling, the Court of Chancery held that plaintiff, a director and former officer of the entity defendant, (“Plaintiff”), was entitled to the advancement of attorneys’ fees incurred prior to Plaintiff’s submission of an undertaking. Defendant, Diligence, Inc. (“Defendant”), argued that a recent Transcript Ruling in the Court of Chancery, Salomon v. Kroenk Sports & Entertainment, LLC, C.A. No. 2019-0858-JTL (Del. Ch. Feb. 26, 2020), supported the proposition that advancement rights do not ripen prior to the provision of an undertaking, and therefore, Plaintiff was not entitled to the advancement of pre-undertaking fees. The Court found that Defendant’s interpretation of Salomon was “not persuasive as a matter of doctrine or the Delaware General Corporation Law,” noting that neither the language of nor the policy behind Section 145(e) of the DGCL “limit advancement to sums incurred post-undertaking.” Moreover, the Court noted that Transcript Rulings, as a general matter, have no precedential value and “at most” offer “persuasive authority." For these reasons, the Court ruled for the Plaintiff and denied Defendant’s objection to the advancement of Plaintiff’s fees.
Chancery Modifies Advancement Award, Finds Amended Claim Challenging Only Post-Separation Conduct No Longer Triggered Advancement Obligations
Carr v. Global Payment Inc., C.A. No. 2018-0565-SG (Del. Ch. Dec. 11, 2019).
Under Delaware law, an order requiring a company to advance attorneys’ fees and expenses may be modified if the claims that triggered the advancement obligation are amended to no longer do so. In this case, a company successfully amended its claims against a former director and officer to eliminate certain advancement obligations. More ›
ShareCourt of Chancery Orders Advancement of Fees for Former Directors and Officers who Sold their Stock in a Private Transaction
Nielsen v. EBTH, Inc., C.A. No. 2019-0164-MTZ (Del. Ch. Sept. 30, 2019).
Delaware law permits advancement of fees and expenses for officers or directors who have such rights under certificates of incorporation, bylaws, or indemnification agreements. Depending on the factual allegations of the underlying action, advancement rights can apply even for former officers and directors of a company who sold their stock in a private transaction to which the company was not a party. More ›
ShareAdvancement Available for Post-Separation Misuse of Confidential Information Obtained “By Reason of the Fact” of Corporate Service
Ephrat v. medCPU, Inc., C.A. No. 2018-0852-MTZ (Del. Ch. Jun. 26, 2019).
Former directors and officers may be entitled to advancement for post-separation conduct if that conduct is "by reason of the fact" of the directors' and officers' corporate service. In response to claims brought by former directors and officers for payments due under the parties' separation agreement, the company counterclaimed that the petitioners had breached non-compete obligations under the agreement and had improperly used the company's confidential information. The petitioners then sought advancement under the company's charter (which incorporated DGCL Section 145’s “by reason of the fact” standard), but the company contended no advancement was necessary because the complained-of conduct followed petitioners' separation from the company. The Court of Chancery reviewed its past decisions on this issue, beginning with Brown v. LiveOps, Inc., 903 A.2d 324 (Del. Ch. 2006). The Court ultimately concluded that the case upon which the company relied – Lieberman v. Electrolytic Ozone, Inc., 2015 WL 5135460 (Del. Ch. Aug. 31, 2015) – was "difficult to harmonize" with the others. Those other cases stand for the principle that allegations of misusing confidential information obtained “by reason of the fact” of former directors’ and officers’ service to the company may trigger advancement rights – even if the alleged misuse occurs after separation and in violation of the directors' and officers' personal agreements with the company. Consequently, the Court held that the petitioners were entitled to advancement for any counterclaims "where the underlying acts depended on or utilized confidential information [the petitioners] obtained by reason of their service at [the company.]" By contrast, they were not entitled to advancement to defend against post-separation violations of their personal contractual obligations that had no alleged "nexus or causal connection to [the petitioners'] service” – such as by engaging in an allegedly competing business, soliciting employees and unlawfully accessing the company’s computer systems – all of which allegedly occurred without any use of confidential information obtained while in service at the company.
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