In International Rail Partners, LLC v. American Rail Partners, LLC, C.A. No. 2020-0177-PAF (Del. Ch. November 24, 2020) plaintiffs International Rail Partners LLC, Boca Equity Partners LLC, Patriot Equity LLC, and Marino (“Plaintiffs”) and defendant American Rail Partners LLC. (“Company”) both filed motions for judgment on the pleadings. The Delaware Court of Chancery (“Court”) granted the Plaintiffs’ motion that sought advancement of expenses incurred while defending an action filed against them by the Company in the Delaware Superior Court. The Court held that the parties’ Limited Liability Company Agreement (“LLC Agreement”) unambiguously provided that the Company must advance the Plaintiffs’ fees incurred in defending the Superior Court action.Read More
In Nielsen v. EBTH Inc., C.A. No. 2019-0164-MTZ (Del. Ch. Sep. 30, 2019), the Delaware Court of Chancery reaffirmed its standard favoring advancement of expenses to officers or directors of a company where the corporation provides mandatory advancement rights either by its certificate of incorporation (“Charter”) or separate indemnification agreements. The court granted summary judgment in favor of the plaintiffs because they (i) either used their corporate powers or such powers were necessary for the commission of the alleged misconduct in the underlying action; or (ii) the alleged misconduct in the underlying action is inextricably intertwined with the actions taken in the plaintiffs’ former capacities as officers or directors, such that the plaintiffs would necessarily be required to disprove allegations that they acted improperly as such. Advancement is appropriate when either of the two prongs for this nexus test are met.Read More
In Brown v. Rite Aid Corp., C.A. No. 2017-0480-MTZ (Del. Ch. May 24, 2019), the Delaware Court of Chancery granted the motion for partial summary judgment of plaintiff Franklin Brown (“Brown”), entitling Brown to indemnification by defendant Rite Aid Corporation (“Rite Aid”) for legal fees and expenses Brown incurred in proceedings arising out of a corporate fraud and accounting scandal in 2002. The court re-affirmed the principles that mandatory indemnification is dependent strictly on the outcome of the underlying action and that the “indemnitee need not be adjudged innocent in some ethical or moral sense,” a defendant need not pursue victory efficiently, and that indemnification is based on the reason by which a defendant is party to the action.Read More
In Computer Science Corporation v. Eric Pulier, et al., C.A. No. 11011-CB (Del. Ch. June 27, 2019), the Delaware Court of Chancery denied Plaintiff Computer Sciences Corporation’s (“CSC”) motion for partial summary judgement seeking to recover a portion of funds advanced to a former officer of ServiceMesh, Inc. (an entity CSC had acquired) for legal expenses incurred in defending a separate action. The Court held that based on its interpretation of the plain language of the indemnification provision in the relevant acquisition agreement that the indemnification provision was not broad enough to encompass the advancement of legal expenses in question.Read More
In Freeman Family LLC v. Park Avenue Landing LLC, C.A. No. 2018-0683-TMR (Del. Ch. April 30, 2019), the Delaware Court of Chancery (the “Court”) held that a member of a limited liability company, in defending a lawsuit in its “official capacity” brought by the company’s managing member, was entitled to advancement of litigation expenses under the company’s operating agreement.Read More
In a case arising out of the purchase by Great Hill Partners of Plimus (now known as BlueSnap, Inc.), the Delaware Court of Chancery, after a 10-day trial and extensive post-trial briefing and oral argument, recently rejected all of the fraud-based claims made by Great Hill against the two founders of Plimus, Messrs. Daniel Kleinberg and Tomer Herzog (the “founders”), who were also directors and major shareholders of Plimus at the time of the transaction. The Court’s decision in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, No. 7906-VCG, 2018 WL 6311829 (Del. Ch. Dec. 3, 2018), is notable for its rejection of several claims Great Hill pressed for years after initiating the litigation in September 2012.Read More
In Fred L. Pasternack v. Northeastern Aviation Corp., C.A. No. 12082-VCMR (Del. Ch. Nov. 9, 2018), the Delaware Court of Chancery awarded mandatory indemnification for legal expenses and fees-on-fees to Fred Pasternack (“Pasternack”), a former pilot for Northeastern Aviation Corp. (“Northeastern”) under Northeastern’s Bylaws (the “Bylaws”) because he was determined to be an agent of Northeastern when attending a random drug test to maintain his pilot certification.Read More
In Post Holdings, Inc., et al. v. NPE Seller Rep LLC, et al., Chancellor Andre G. Bouchard granted defendant NPE Seller Rep LLC’s (“Seller Representative”) motion for judgment on the pleadings on its counterclaim seeking payment of tax refunds and insurance proceeds allegedly owing under a stock purchase agreement (the “Agreement”). In rendering its decision, the Court concluded that once a party has made a contractual indemnification demand based on a counterparty’s alleged material breach, such party cannot rely on the same breach to excuse non-performance of its own obligations under the contract. The Court also found that unliquidated indemnification claims could not be the basis for an offset of amounts owed in the absence of contract language to the contrary.
In ChyronHego Corporation, et al., v. Cliff Wight and CFX Holdings, Inc., C.A. No. 2017-0548-SG (Del. Ch. July 31, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the plaintiffs’ claim for extra-contractual fraud on the basis that the stock purchase agreement contained an effective anti-reliance clause that precluded such claim. The Court found that the anti-reliance clause rebutted the common law fraud element of reliance on any extra-contractual representations, as described further below. At the same time, the Court dismissed the defendants’ motion to dismiss claims for fraud and breaches of express representations and warranties under the stock purchase agreement, finding that the plaintiffs had sufficiently pleaded the elements of these claims.
In Meyers et al. v. Quiz-Dia LLC et al., No. 9878-VCL (Del. Ch. June 6, 2017), the Court of Chancery, entered a summary judgment in favor of the plaintiffs entitling them to indemnification from Quizmark LLC (“Quizmark”) and QCE Gift Card LLC (“QCE Gift Card”). The Chancery Court also determined that the plaintiffs were not entitled to indemnification from Quiz-Dia LLC (“Quiz-Dia”).
The plaintiffs, Greg MacDonald (“MacDonald”) and Dennis Smyth (“Smyth”), were officers of the principal operating entity of Quiznos, QCE LLC (“OpCo”), and claim to have been officers of all of OpCo’s subsidiaries, including Quizmark, QCE Gift Card, and Quiz-Dia (collectively, the “Subs”). By 2012, various investment funds (the “Funds”) had accumulated substantial positions in OpCo’s debt and OpCo was having difficulty operating its business. This granted the Funds the power to declare a default under OpCo’s loan agreements. To neutralize the threat of default, OpCo entered into a complex restructuring transaction which transferred the ultimate ownership of OpCo and its subsidiaries to the Funds (the “Restructuring”). MacDonald and Smythe left Quiznos shortly thereafter.
In EMSI Acquisition, Inc. v. Contrarian Funds, LLC, et al., C.A. No. 12648-VCS (Del. Ch. May 3, 2017) the Delaware Chancery Court denied a motion to dismiss brought by defendants who were sellers (“Sellers”) in the acquisition of EMSI Holding Company (“EMSI”) by an affiliate of private equity firm Beecken Petty O’Keefe & Company where “inelegant drafting” created an ambiguity that may make the Sellers liable for EMSI’s fraudulent representations and warranties. To reach this conclusion, the Court considered whether the provisions of the Stock Purchase Agreement (“SPA”) permitted the plaintiff (“Buyer”) to seek indemnification beyond the cap on liability and, if so, whether the Sellers could be liable for the allegedly fraudulent representations and warranties from EMSI. The Court concluded that the SPA contained conflicting provisions with interpretations that could reasonably support either party’s claims and the conflicts could not be resolved on a motion to dismiss.
In Horne v. OptimisCorp, C.A. No. 12268-VCS (Del. Ch. March 3, 2017) the Chancery Court granted plaintiff William Horne’s motion for summary judgment, holding that his demand for indemnification of fees and costs he incurred in connection with the successful defense of a case brought by defendant OptimisCorp against him and others were reasonable on their face. The Court granted summary judgment in favor of a plaintiff, awarding in excess of $1 million in litigation fees and expenses incurred in the underlying action and in connection with the prosecution of the indemnification action, and interest on such amounts.