On a motion to “’confirm the trial schedule,’” Vice Chancellor Glasscock determined that actions brought by the limited partners of a partnership based upon the general partner’s alleged fraud, self interest and breach of the partnership agreement were direct claims and therefore not subject to a stay pursuant to the partnership’s bankruptcy proceeding. Sehoy Energy LP et al. v. Haven Real Estate Group, LLC et al., C.A. No. 12387-VCG (Del. Ch. April 17, 2017), addressed a situation in which the general partner of a limited partnership (and the person controlling the general partner) used funds of the limited partnership to make investments into the business of a personal friend which ultimately resulted in the bankruptcy of the partnership.
This case involves a plaintiff who sought advancement for his legal fees and expenses in connection with insider trading charges. In opining on the defendant’s motion to dismiss or stay the action and the plaintiff’s motion for summary judgment, the Court considered various issues, including the four-factor analysis of McWane and the difference between advancement and indemnification.
Nipro Diagnostics, Inc. (“Nipro”), the defendant, acquired Home Diagnostics, Inc. (“HDI”) on March 15, 2010. Soon after the merger, the SEC began an investigation of George H. Holley (“Holley”), the founder and chairman of HDI and the plaintiff in this case, for suspicious trading in HDI stock around the time of the merger announcement (the “SEC Investigation”). On May 20, 2010, Holley requested that HDI advance his expenses in the SEC Investigation, and executed an undertaking (required with any advancement) promising to repay HDI for any advanced expenses if it were ultimately determined that Holley was not entitled to indemnification. From June 2010 to November 2010, Nipro advanced Holley’s expenses relating to the SEC Investigation. On January 13, 2011, the SEC commenced an action against Holley for violating federal securities laws by disclosing information about the merger (the “SEC Action”). On February 4, 2011, Holley was indicted in the U.S. District Court for the State of New Jersey for insider trading (the “Criminal Action”). On August 19, 2011, the New Jersey U.S. Attorney’s Office obtained a stay of the SEC Action. Holley eventually pled guilty to two counts of insider trading in the Criminal Action.