Showing 4 posts in Advancement.
Chancery 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
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 ›Share
Court of Chancery Orders Advancement of Fees for Former Directors and Officers who Sold their Stock in a Private Transaction
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 ›Share
Advancement Available for Post-Separation Misuse of Confidential Information Obtained “By Reason of the Fact” of Corporate Service
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.Share