Tag: Indemnification

Chancery Court Preserves Advancement for Corporate Officers Despite Exclusive Remedies and Seller Release Provisions in Stock Purchase Agreement

By Whitney Smith and Dean Brazier

In Mark S. Davis, et al. v. EMSI Holding Company, C.A. No. 12854-VCS (Del. Ch. May 3, 2017) the Delaware Chancery Court granted a motion for summary judgment brought by former officers of the defendant (“EMSI”) seeking advancement of legal fees for their defense in a related action, EMSI Acquisition, Inc. v. Contrarian Funds, LLC, et al., C.A. No. 12648-VCS (Del. Ch. May 3, 2017).  In granting the motion, the Court considered whether the plaintiffs had waived or released their right to advancement in the exclusive remedies provision or the seller release provision of the Stock Purchase Agreement (“SPA”) entered into in connection with the sale of EMSI.  The Court concluded that the SPA provisions did not waive or release the officers’ right to advancement of defense costs under EMSI’s bylaws and a sufficient nexus existed between the plaintiffs’ role as former officers and the claims in EMSI Acquisition requiring their defense.

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COURT OF CHANCERY CONSTRUES INDEMNIFICATION CLAUSES FOR LIMITED LIABILITY COMPANY OFFICERS

By: Scott Waxman and Michael Bill

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.

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