Tag: Officers

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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CHANCERY COURT ISSUES DECLARATORY JUDGMENT REGARDING BOARD AND MEMBER ACTIONS TAKEN IN CONTRAVENTION OF CORPORATION’S BYLAWS

By: Susan A. Apel & Rachel Cheasty Sanders

In Rainbow Mountain, Inc. v. Terry Begeman, C.A. No. 10221-VCMR (Del. Ch. March 23, 2017), the Delaware Court of Chancery issued a declaratory judgment on cross-motions for summary judgment regarding whether pro se defendant, Terry Begeman, was properly removed as a director, member, and officer of plaintiff nonstock corporation Rainbow Mountain, Inc. (“Rainbow Mountain” or the “corporation”).  Based on uncontroverted facts, the Court determined that Terry[1] had been properly removed as Secretary, but retained his position as Senior Vice-President, director and member.  Under the bylaws, as a “Regular Member” of Rainbow Mountain, Terry had the right to occupy the corporation’s land.

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Chancery Court Enjoins Incumbent Board Members’ Plan to Reduce Number of Board Seats Prior to Contested Election at Annual Meeting

By Remsen Kinne and David Noll

In Pell v. Kill, et al, C.A. No. 12251-VCL (Del. Ch. May, 19, 2016), Vice Chancellor Laster preliminarily enjoined incumbent members of a board of directors from implementing a plan to reduce the number of board seats prior to a directors’ election at an annual meeting after a proxy challenge had been made.

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