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Court of Chancery Denies Motion For Stay Pending Appeal on Advancement of Attorneys' Fees

Tafeen v. Homestore, Inc., C.A. No. 023-N, 2005 WL 1314782(Del. Ch. May 26, 2005) The Court considered the motion of defendant Homestore for a stay pending appeal of the Court's rulings which ordered Homestore to pay director Tafeen's advancement fees and assessed the costs of the Special Master's services against Homestore. The Court denied the Motion. In exercising its discretion to grant a stay pending appeal, this Court considers four factors, often referred to as the Kirpat test, which are: (1) the likelihood of success on the merits of the appeal; (2) whether the movant will suffer irreparable harm if the stay is not granted; (3) whether any other interested party will suffer substantial harm if the stay is granted; and (4)whether the public interest will be harmed if the stay is granted. Going through each factor, the Court found that Homestore failed to meet any of the four requirements. Notably, the court found that
a stay, which would prevent Homestore's advancement payment from reaching Tafeen in time to pay for his defense, would serve not only to deny Tafeen the very money that this Court believes he is contractually entitled to, but would also force Tafeen, who is severely short of funds, to selectively defend these various actions, a harm that could never be undone regardless of Homestore's supersedeas bond. Rather, the Court believes that the more equitable solution would be to allow Tafeen to claim the advancement that is due to him, and if on appeal the Supreme Court believes that he was not entitled to such monies, that he then be required to pay such monies back to the best of his ability.
With respect to the last factor, the Court found that,
The express purpose of 8 Del. C. § 145, which provides advancement and indemnification rights to officers and directors, is to "promote the desirable end that corporate officials will resist what they consider unjustified suits and claims, secure in the knowledge that their reasonable expenses will be borne by the corporation they have served if they are vindicated."
To that end, the Court further opined that
"to be of any value to the executive or director, advancement must be made promptly, otherwise its benefit is forever lost because the failure to advance fees affects the counsel the director may choose and litigation strategy that the executive or director will be able to afford. To grant Homestore's motion would allow it to continue to be derelict in its contractual protection of its directors/officers, and that would force its directors/officers to compromise their own litigations in the face of cost concerns, a result that is clearly against Delaware's policy of resolving advancement issues as quickly as possible."
To be sent a PDF copy of this opionion, please click here. Authored by: Liza Haley Sherman 302.888.6940 lsherman@morrisjames.com Share

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