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Court of Chancery Rejects Limit on Advancement Rights

Posted In Directors
Wendell Brown v. LiveOps, Inc., C.A. No. 1991-N, 2006 WL 1667652 (Del. Ch. June 12, 2006). In another rejection of artificial limits on the right to advancement, the Court of Chancery has rejected the argument that there is no right to advancement of legal fees to defend a suit that seeks recovery for post termination conduct. Wendell Brown was a former officer and director of the defendant LiveOps, Inc. After Brown left LiveOps to start another business, LiveOps sued him alleging that his new business used trade secrets of LiveOps. The company argued that the suit over Brown's post termination conduct did not have a nexus or causal connection to his past employment sufficient to fall under his contractual rights to advancement. Applying the usual tests for determining if Brown had been sued by reason of the fact of his past employment by LiveOps, the Court of Chancery had no trouble in rejecting the claim that Brown's post termination conduct was unrelated to his employment at LiveOps when the suit against him claimed he had taken LiveOps secrets. This result is another in a long line of cases that uphold contractual rights to advancement that the defendant corporation tries to avoid. Simply suing for post termination conduct is not going to work when the suit really is premised on conduct that occurred before termination.