Holley v. Nipro Diagnostics, Inc.
Date Filed2014-12-23
DocketCA 9679-VCP
JudgeParsons
Cited0 times
StatusPublished
Full Opinion (html_with_citations)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
:
GEORGE H. HOLLEY, :
:
Plaintiff, : C.A. No. 9679-VCP
:
v. :
:
NIPRO DIAGNOSTICS, INC., a :
Delaware corporation, f/k/a/ HOME :
DIAGNOSTICS, INC., a Delaware :
corporation, :
:
Defendant. :
:
MEMORANDUM OPINION
Submitted: August 6, 2014
Decided: December 23, 2014
Arthur L. Dent, Esq., Kevin P. Shannon, Esq., Matthew F. Davis, Esq., POTTER,
ANDERSON & CORROON LLP, Wilmington, Delaware; Kevin H. Marino, Esq., John
D. Tortorella, Esq., John A. Boyle, Esq., MARINO, TORTORELLA & BOYLE, P.C.,
Chatham, New Jersey; Attorneys for Plaintiff George H. Holley.
Francis G.X. Pileggi, Esq., ECKERT SEAMANS CHERIN & MELLOTT, LLC,
Wilmington, Delaware; Attorneys for Defendant Nipro Diagnostics, Inc.
PARSONS, Vice Chancellor.
This is yet another advancement case in which a company disputes its obligation
to pay the attorneysâ fees of an officer or director during the course of litigation. The
plaintiff pled guilty to two counts of criminal insider trading relating to tips given to
family and friends about the impending acquisition of the company he founded.
Previously, the plaintiff had signed an indemnification agreement specifically excluding
any obligation of the company to indemnify the plaintiff for insider trading and other
securities violations. Several civil suits have followed and continue to be litigated,
including three initiated by the companyâs acquirer and one brought by the Securities and
Exchange Commission (âSECâ), relating to various insider trading allegations and the
plaintiffâs rights to advancement and indemnification.
The defendant has moved to dismiss or stay this case in favor of an allegedly first-
filed action in Florida that seeks to recoup money initially advanced to the plaintiff by the
company. The plaintiff has moved for partial summary judgment on those counts of his
Complaint that seek advancement of legal expenses incurred in defending against the
related civil litigation and fees on fees. For the reasons that follow, I conclude that the
defendantâs motion to dismiss or stay should be denied and that the plaintiffâs motion for
partial summary judgment should be granted.
1
I. BACKGROUND1
Plaintiff, George H. Holley, was the founder and chairman of Home Diagnostics,
Inc. (âHDIâ), a Delaware corporation.
Defendant, Nipro Diagnostics, Inc. (âNiproâ or the âCompanyâ), is a Delaware
corporation. On February 3, 2010, Nipro signed a merger agreement to acquire HDI
through an all cash tender offer. The merger agreement became effective on March 15,
2010, at which time HDIâs Certificate of Incorporation was amended and restated. Upon
acquiring HDI, Nipro assumed its predecessorâs obligations, which include the
advancement provisions at issue here.
A. The Underlying Lawsuits
Shortly after the announcement of the NiproâHDI merger, the SEC began an
investigation of suspicious trading in the stock of HDI at or around the time of the merger
announcement (the âSEC Investigationâ). On May 20, 2010, Holley requested, by letter,
that HDI advance his legal fees and expenses in the SEC Investigation. Concurrently,
Holley executed an undertaking whereby he promised âto repay to the Company the
amount of such expenses so advanced if it shall ultimately be determined that [he is] not
entitled to be indemnified by the Corporation as authorized by the Companyâs Certificate
of Incorporation, its Bylaws, any agreements of Indemnification, or applicable law.â2
1
Unless otherwise noted, the facts recited herein are drawn from the well-pled
allegations of the Amended and Supplemental Verified Complaint (the
âComplaintâ), together with its attached exhibits.
2
Compl. ¶ 12.
2
Nipro began advancing Holleyâs fees and expenses relating to the SEC Investigation in
June 2010. By November 2010, Nipro had advanced roughly $175,000 to Holleyâs
counsel.
The first of several relevant lawsuits was filed in early 2011. On January 13,
2011, the SEC commenced an action against Holley in the U.S. District Court for the
State of New Jersey in which it charged him with violating federal securities laws by
disclosing material non-public information about the imminent NiproâHDI merger to six
friends, relatives, or employees (the âSEC Actionâ). The SEC Action, although it was
stayed for a substantial period of time, is ongoing.
A contemporaneous criminal investigation by the New Jersey United States
Attorneyâs Office (âNJ USAOâ) resulted in a grand jury indicting Holley on February 4,
2011, in the U.S. District Court for the State of New Jersey. The government accused
Holley of, among other things, orchestrating and executing an insider trading scheme in
violation of federal law (the âCriminal Actionâ). The NJ USAO sought and, on August
19, 2011, obtained a stay of the SEC Action. Early procedural events led to the dismissal
of certain counts against Holley in the Criminal Action. At trial, in August 2012, after
the government had rested its case and before the defense began its case, the court
granted Holleyâs motion for acquittal on two additional counts of the indictment.
Thereafter, Holley and the government reached a plea agreement, pursuant to which
Holley agreed to plead guilty to two counts of insider trading in exchange for the
government dismissing three other counts, including wire fraud, witness tampering, and
obstruction of justice. The judge in the Criminal Action sentenced Holley to probation.
3
On November 19, 2012, Nipro commenced an action against Holley (the â2012
Florida Actionâ) in the U.S. District Court for the Southern District of Florida (the
âFlorida Courtâ). In the 2012 Florida Action, Nipro sought, among other relief, to recoup
the funds advanced to Holley in connection with the SEC Investigation under theories of
breach of contract and unjust enrichment, notwithstanding the fact that the SEC Action
was still pending. Nipro argued that Holley was precluded from receiving
indemnification, and therefore advancement as well, in defending against the actions
taken by the SEC due to the terms of a previously executed indemnification agreement he
had with HDI (the âIndemnity Agreementâ). Nipro further asserted that keeping the
advanced funds would be a violation of Holleyâs undertaking and, therefore, amount to
unjust enrichment.
On May 15, 2013, Holley sought advancement from Nipro relating to the ongoing
SEC Action and partial indemnification commensurate with his success in the Criminal
Action. An undertaking to repay accompanied his demand letter. Nipro did not provide
Holley with any of the requested advancement or indemnification. On June 19, 2013, the
Florida Court dismissed the 2012 Florida Action without prejudice for lack of subject
matter jurisdiction, apparently based on a pleading error. The Florida Court subsequently
denied a motion by Nipro to reopen the 2012 Florida Action. Holley renewed his
requests for advancement and indemnification on July 16, 2013.
On April 21, 2014, Nipro filed another action against Holley in the Florida Court
(the â2014 Florida Action Iâ). In that litigation, Nipro reasserted only its claims for
breach of contract and unjust enrichment based on Holleyâs retention of the previously
4
advanced funds. On June 17, 2014, the Florida Court dismissed the 2014 Florida
Action I because the civil action form filed with the complaint failed to identify a
substantially related, previously filed caseâi.e., the 2012 Florida Action.
Not to be deterred, on the same day, June 17, 2014, Nipro filed another action in
the Florida Court (the â2014 Florida Action IIâ), reasserting the same complaint that it
had filed in the 2014 Florida Action I. On June 20, 2014, Holley demanded that Nipro
advance him the legal fees and expenses he would incur in defending the 2014 Florida
Action II. Although Holley had provided the requisite undertaking, Nipro rejected his
demand.
B. Procedural History of This Case
On May 21, 2014, after the filing of the 2014 Florida Action I, but before it was
dismissed, Holley filed his complaint in this action. In that complaint, Holley asserted
the right to receive advancement from Nipro for the SEC Action and the 2014 Florida
Action I, as well as indemnification for certain fees and expenses he incurred in the
Criminal Action and the 2012 Florida Action. On June 20, following the Florida Courtâs
dismissal of the 2014 Florida Action I and Niproâs filing of the 2014 Florida Action II,
Holley filed the currently operative Complaint in this action, which was amended to
include a claim for indemnification for fees incurred in the 2014 Florida Action I and a
claim for advancement for the 2014 Florida Action II.
Minutes before Holley filed his amended Complaint here, Nipro had moved to
dismiss or stay this action in favor of the 2014 Florida Action I. Nipro later amended its
motion to seek instead to have this action dismissed or stayed in favor of the 2014 Florida
5
Action II. Also on June 20, Holley moved for partial summary judgment on his
advancement claims. The parties fully briefed in parallel both Niproâs motion to dismiss
or stay and Holleyâs motion for partial summary judgment.3 I heard argument on those
two motions on August 6, 2014 (the âArgumentâ).
II. MOTION TO DISMISS OR STAY
A. Standard of Review
âIt has long been held in Delaware that, âas a general rule, litigation should be
confined to the forum in which it is first commenced, and a defendant should not be
permitted to defeat the plaintiffâs choice of forum in a pending suit by commencing
litigation involving the same cause of action in another jurisdiction of its own
choosing.ââ4 Thus, â[u]nder the [McWane] first-filed rule, this Court freely exercises its
broad discretion to grant a stay âwhen there is [1] a prior action pending elsewhere, [2] in
a court capable of doing prompt and complete justice, [3] involving the same parties and
the same issues.ââ5
3
Briefing on the motion to dismiss consists of Defendantâs Opening Brief (âDef.âs
MTD Br.â), Plaintiffâs Opposition Brief (âPl.âs MTD Oppânâ), and Defendantâs
Reply Brief (âDef.âs MTD Replyâ). Briefing on the motion for partial summary
judgment consists of Plaintiffâs Opening Brief (âPl.âs SJ Br.â), Defendantâs
Opposition Brief (âDef.âs SJ Oppânâ), and Plaintiffâs Reply Brief (âPl.âs SJ
Replyâ).
4
Transamerica Corp. v. Reliance Ins. Co. of Ill., 1995 WL 1312656, at *3 (Del.
Super. Aug. 30, 1995) (citing McWane Cast Iron Pipe Corp. v. McDowell-
Wellman Engâg Co., 263 A.2d 281, 283 (Del. 1970)).
5
In re Bear Stearns Cos. Sâholder Litig., 2008 WL 959992, at *5 (Del. Ch. Apr. 9,
2008) (quoting McWane, 263 A.2d at 283).
6
Under McWane, however, the parties and issues need not be identical. âInstead,
the courts examine whether the ultimate legal issues to be litigated will be determined in
the first-filed action, and thus, repeatedly have held that McWane requires only a showing
of â[s]ubstantial or functional identity.ââ6 Similar issues are those that arise out of a
âcommon nucleus of operative facts.â7 Likewise, parties are considered substantially the
same for purposes of McWane âwhere related entities are involved but not named in both
actions,â such that the exclusion is ââmore a matter of form than substance.ââ8
Several Court of Chancery cases have granted a stay under McWane in a summary
proceeding.9 For summary proceedings, however, there need to be special circumstances
6
McQuaide v. McQuaide, 2005 WL 1288523, at *4 (Del. Ch. May 24, 2005)
(quoting AT & T Corp. v. Prime Security Distribs., Inc., 1996 WL 633300, at *2
(Del. Ch. Oct. 24, 1996)); see also Chadwick v. Metro Corp., 856 A.2d 1066
(Table), 2004 WL 1874652, at *2 (Del. 2004) (âUnder McWane and its progeny, a
judge, in the exercise of his or her discretion, may stay or dismiss a later-filed suit
where a first-filed suit is pending in a court capable of administering prompt and
complete justice, and involves substantially similar parties and issues.â);
Transamerica Corp., 1995 WL 1312656, at *3.
7
Schnell v. Porta Sys. Corp., 1994 WL 148276, at *4 (Del. Ch. Apr. 12, 1994).
8
McQuaide, 2005 WL 1288523, at *4 (quoting FWM Corp. v. VKK Corp.,1992 WL 87327
, at *1 (Del. Ch. Apr. 27, 1992)).
9
See, e.g., McElroy v. Schornstein, 2012 WL 2428343 (Del. Ch. June 20, 2012)
(dismissing without prejudice on McWane grounds a corporate dissolution action);
Xpress Mgmt., Inc. v. Hot Wings Intâl, Inc., 2007 WL 1660741 (Del. Ch. May 30,
2007) (granting stay under McWane in order to allow first-filed litigation in
Canada to proceed in a dissolution case because the assets of the company were
being determined in Canada and the Delaware litigation was just another effort by
the plaintiff to try and seize control of the company); Johnston v. Caremark RX,
Inc., 2000 WL 354381 (Del. Ch. Mar. 28, 2000) (granting stay of case seeking
advancement under an unusual set of facts where the plaintiff first litigated in
7
warranting a stay.10 Overall, the Court âmust weigh âthe need for swift and expeditious
resolutionâ of these summary proceedings âagainst the McWane policies of comity and
promoting the efficient administration of justice.ââ11 The present dispute is a summary
proceeding for advancement under 8 Del. C. § 145. This context, therefore, warrants the
Court considering a fourth factor in its McWane analysis, namely: whether a balance of
the harms weighs in favor of staying the Delaware action.12
Alabama and had raised the advancement issue there); Carvel v. Andreas Hldgs.
Corp., 698 A.2d 375 (Del. Ch. 1995) (granting stay of case under 8 Del. C. § 225
because the dispute over who owned the stock in issue was already before a
probate court in New York).
10
See McElroy, 2012 WL 2428343, at *1 (âSummary statutory proceedings such as
this one under [8 Del. C.] § 273 obviously require special attention when
considering a motion to stay or dismiss under McWane. This court has often
considered Delaware to be a more appropriate forum than a foreign court when a
component of multi-forum litigation involves a summary proceeding under the
[DGCL].â); Xpress Mgmt., 2007 WL 1660741, at *5 (âIt is an indisputable
proposition that this State has a strong, and often paramount, interest in seeing
such disputes [about a Delaware companyâs internal affairs] resolved in a rapid,
orderly, and predictable manner. Due in large part to this pressing interest, a
summary proceeding initiated in the Court of Chancery will often be allowed to
proceed despite the pendency in a foreign court of a related prior-filed action
between the same litigants.â).
11
McElroy, 2012 WL 2428343, at *1 (quoting Choice Hotels Intâl, Inc. v. Columbus-
Hunt Park Dr. BNK Investors, LLC, 2009 WL 3335332, at *4 (Del. Ch. Oct. 15,
2009)).
12
Choice Hotels Intâl, 2009 WL 3335332, at *10-11.
8
B. Analysis
I address the McWane factors in turn. For the reasons stated below, I find that
Nipro has not shown that this case should be stayed or dismissed in favor of the 2014
Florida Action II.
1. Is the 2014 Florida Action II first-filed?
Nipro filed the 2014 Florida Action II about a month after Holley filed this action
in Delaware. Normally, such a time differential conclusively would prevent the 2014
Florida Action II from being considered the first-filed, or even a simultaneously filed,
complaint. Nipro emphasizes, however, that the complaints in the 2014 Florida Action I
and the 2014 Florida Action II are practically identical. Therefore, it argues, the filing
date of the latter should relate back to that of the former, making Niproâs case the first-
filed action by nearly a month relative to Holleyâs initial Delaware complaint.
There is at least some support in Delaware case law for Niproâs position.
â[W]here an otherwise first-filed case has been amended or altered, Delaware courts will
âcompare[] the substance of the original case to that of the case as later composed,ââ and
âwhere the âsubstance of the original case remains unchanged,â the court will treat the
modified action as if filed on the original date.â13 The two 2014 Florida complaints
essentially are identical. An argument can be made, however, that Nipro should not be
allowed to claim the mantle of first-filer here because it failed on two previous occasions
13
Choice Hotels Intâl, 2009 WL 3335332, at *6 (quoting McQuaide, Inc.,2005 WL 1288523
, at *4).
9
to comply with the Florida Courtâs procedural rules for bringing a case. Nevertheless, I
need not determine that issue in this case, because even if I assume that the 2014 Florida
Action II qualifies as a first-filed action, Nipro cannot satisfy the other elements of the
McWane standard.
2. Do both actions involve the same parties and issues?
It is undisputed that this litigation and the 2014 Florida Action II involve the same
parties. Nipro also contends that the issues in this case and the 2014 Florida Action II
arise from a common nucleus of operative fact. Yet, a common underlying factual core,
on its own, is not always enough. The issues in the two cases still must be âfunctionally
similar,â and that question deserves even âcloser inspectionâ when one of the competing
actions is a summary proceeding.14
In the 2014 Florida Action II, Nipro in essence asserts claims related to Holleyâs
right to indemnification in the ongoing SEC Action. Indeed, that action seeks to recoup
the legal fees of Holley previously advanced by Nipro. By contrast, in this action, Holley
asserts a right to advancement in the SEC Action. In addition, Holley here asserts a
number of additional claims that are not at issue in the 2014 Florida Action II, including a
claim for advancement in connection with that action, and claims for indemnification of
certain fees and expenses he incurred in litigating the Criminal Action, the 2012 Florida
Action, and the 2014 Florida Action I.
14
See id. at *7.
10
As my ruling on Holleyâs summary judgment motion demonstrates infra,
advancement and indemnification are distinct from one another. One difference is that,
unlike advancement actions, which are usually expedited, indemnification claims usually
do not receive expedited treatment. Consistent with that distinction, I have focused my
attention on the pending motions on Holleyâs advancement claims. His requests for
indemnification in this action can be taken up at a later time, if necessary. Thus, I do not
consider the advancement issues currently before me in this case to be functionally
similar to the issues in the 2014 Florida Action II.
3. Can Holley obtain prompt and complete justice in the Florida Court?
I have no doubt that the Florida Court could render prompt and complete justice as
to any claims properly before it. The procedural history of this case, however, casts
doubt on whether Holley could obtain prompt and complete justice as to his advancement
claims before the Florida Court. For starters, despite Niproâs debatable assertion that
Holleyâs request for advancement is a compulsory counterclaim under the Federal Rules
of Civil Procedure, it is clear that Holleyâs advancement claims were not before the
Florida Court as of the Argument in this action.15 Whether Holleyâs claims would be
compulsory counterclaims before the Florida Court depends on what claims of Nipro, if
any, are properly before that court.
Although Nipro has attempted to assert certain claims in the Florida Court for over
two years, it appears to have made a number of procedural mistakes in doing so. As a
15
Arg. Tr. 12.
11
result, Niproâs ability to move forward any claims in the 2014 Florida Action II is open to
question. In that regard, I note that, having dismissed Niproâs complaints in the 2012
Florida Action and the 2014 Florida Action I, it is unclear how the Florida Court will
respond to Niproâs latest attempt to pursue its claims there. For example, Holley has
advanced a colorable argument that the 2014 Florida Action II might be dismissed on
ripeness grounds because the SEC Action remains ongoing, which arguably makes
Niproâs claims for repayment premature. In sum, Nipro has made a weak showing, at
best, that the litigation it is attempting to prosecute before the Florida Court is likely to
enable Holley to obtain prompt and complete adjudication of his advancement claims.
4. Does the balance of harms favor staying this action?
As previously discussed, the summary nature of a challenged proceeding does not
preclude a movant from prevailing on a McWane argument. This Court has held,
however, that âin all but the most exceptional circumstances, claims under Section 145(k)
for advancement of expenses should not be stayed or dismissed in favor of the prior
pending foreign litigation that give rise to them.â16 The 2014 Florida Action II gives rise
to a portion of Holleyâs advancement claims. More broadly, this Courtâs opinion in Fuisz
v. Biovail Technologies suggests that a defendant must present to the Court a particularly
compelling explanation as to why an advancement case ought to be stayed under the
McWane doctrine. Nipro has not presented such an explanation here.
16
Fuisz v. Biovail Techs., Ltd., 2000 WL 1277369, at *1 (Del. Ch. Sept. 6, 2000).
12
The advancement claims are raised only tangentially in the 2014 Florida Action II.
That is, the only reason Nipro puts forward to negate advancement for Holley is that no
indemnification is possible in Holleyâs situation and, accordingly, under Niproâs
reasoning, advancement similarly is precluded. A major part of that argument relies on
Niproâs interpretation of Section 4(a) of the Indemnity Agreement. For the reasons
discussed in Section III.2 infra, regarding Holleyâs motion for partial summary judgment,
I reject that aspect of Niproâs position on the merits. Therefore, Holleyâs right to the
summary adjudication of his advancement claims in this action outweighs Niproâs desire
to avoid having to litigate outside of Florida.
In sum, Nipro failed to meet its burden of showing that the McWane factors
support staying or dismissing this case. At best, only one of the four McWane factors
weighs in Niproâs favor. Accordingly, I exercise my discretion to deny Niproâs motion to
dismiss or stay.
III. MOTION FOR PARTIAL SUMMARY JUDGMENT
Holley seeks partial summary judgment on his requests for advancement of legal
fees and expenses incurred in the SEC Action and the 2014 Florida Action II as well as
his fees and expenses related to pursuing those requests in this actionâi.e., his fees on
fees. Holleyâs motion is not directed to the indemnification disputes between the parties;
therefore, those claims will be the subject of future proceedings.
A. Standard of Review
âSummary judgment is granted if the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, show that there is no
13
genuine issue as to any material fact and that the moving party is entitled to a judgment
as a matter of law.â17 When considering a motion for summary judgment, the evidence
and the inferences drawn from the evidence are to be viewed in the light most favorable
to the nonmoving party.18 Summary judgment will be denied when the legal question
presented needs to be assessed in the âmore highly textured factual setting of a trial.â19
The Court âmaintains the discretion to deny summary judgment if it decides that a more
thorough development of the record would clarify the law or its application.â 20
âAdvancement cases are particularly appropriate for resolution on a paper record, as they
principally involve the question of whether claims pled in a complaint against a party . . .
trigger a right to advancement under the terms of a corporate instrument.â21
B. Analysis
Delaware law permits, and in some cases requires, corporations to indemnify their
directors and officers for legal fees incurred in defending certain actions.22 Advancement
17
Twin Bridges Ltd. Pâship v. Draper, 2007 WL 2744609, at *8 (Del. Ch. Sept. 14,
2007) (citing Ct. Ch. R. 56(c)).
18
Judah v. Del. Trust Co., 378 A.2d 624, 632 (Del. 1977).
19
Schick Inc. v. Amalgamated Clothing & Textile Workers Union, 533 A.2d 1235,
1239 n.3 (Del. Ch. 1987) (citing Kennedy v. Silas Mason Co., 334 U.S. 249, 257
(1948)).
20
Tunnell v. Stokley, 2006 WL 452780, at *2 (Del. Ch. Feb. 15, 2006) (quoting
Cooke v. Oolie, 2000 WL 710199, at *11 (Del. Ch. May 24, 2000)).
21
DeLucca v. KKAT Mgmt., L.L.C., 2006 WL 224058, at *6 (Del. Ch. Jan. 23,
2006).
22
8 Del. C. § 145(a)-(c).
14
is purely permissive; no Delaware corporation is required to advance any legal fees.23
Many corporations, however, provide for mandatory advancement as an enticement to
attract qualified individuals to serve as directors and officers. Holleyâs rights to
advancement derive from an Indemnity Agreement and HDIâs Certificate of
Incorporation.24 The Certificate of Incorporation states, in relevant part:
[T]he Corporation shall indemnify, to the fullest extent
permitted under the General Corporation Law of the State of
Delaware, any person who was, is or is threatened to be made
a party to a proceeding by reason of the fact he or she . . . was
a director or officer of the corporation at any time prior to the
date of the filing of this certificate of incorporation . . . . Such
right shall include the right to be paid by the corporation
expenses (including attorneysâ fees) incurred in defending
any such proceeding in advance of its final disposition to the
maximum extent permitted under the General Corporation
Law of the State of Delaware.25
The Indemnity Agreement includes a provision stating that the Company will,
subject to certain limits discussed infra, indemnify Holley:
against any and all costs and expenses . . . witness fees,
damages, judgments, fines and amounts paid in settlement
and any other amounts that [Holley] becomes legally
23
8 Del. C. § 145(e) (âExpenses (including attorneysâ fees) incurred by an officer or
director of the corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding . . . .â) (emphasis added).
24
The Amended and Restated Certificate of Incorporation of Home Diagnostics, Inc.
and the Indemnity Agreement were attached as Exhibits A and B, respectively, to
Holleyâs initial Verified Complaint (hereinafter âCertificate of Incorporationâ and
âIndemnity Agreementâ).
25
Certificate of Incorporation Art. 8.
15
obligated to pay because of any claim or claims made against
him in connection with any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative . . . to which
[Holley] was or at any time becomes a party, or is threatened
to be made a party, by reason of the fact that [Holley] is, was
or at any time becomes a director, officer, employee or other
agent of the corporation . . . .â26
The Indemnity Agreement later provides that: âThe Corporation shall advance, prior to
the final disposition of any action, suit or proceeding . . . all costs and expenses . . .
incurred by [Holley] in connection with such action, suit or proceeding,â conditioned
only âupon receipt of an undertaking by or on behalf of [Holley] to repay said amounts if
it shall be determined ultimately that [Holley] is not entitled to be indemnified . . . .â27
Both the Certificate of Incorporation and the Indemnity Agreement thus provide for
broad mandatory advancement rights.
Nipro advances three main arguments against Holleyâs advancement requests.
First, Nipro contends that Holley was not made a party to the SEC Action âby reason of
the factâ he was an officer or director of HDI. At the very least, Nipro maintains, this is a
factual question precluding summary judgment. Second, Nipro argues that the Indemnity
Agreement between the parties precludes any indemnification for claims of insider
trading. Based on that premise, Nipro avers that it would be impossible for Holley to be
indemnified for the claims for which he seeks advancement in this action and, therefore,
26
Indemnity Agreement § 3(a).
27
Id. § 8.
16
that he is not entitled to advancement for those claims either. Third, Nipro maintains that
Holleyâs undertaking in relation to the SEC Investigation did not carry forward into the
SEC Action. Nipro also contends that any attempt by Holley now to provide the
undertaking required for advancement as to the SEC Action would be barred by laches. I
address these arguments in turn. Sections III.1âIII.4 infra concern the SEC Action, to
which Nipro devoted the vast majority of its briefing. Section III.5 resolves the
advancement request for the 2014 Florida Action II.
1. Was Holley made a party to the SEC Action âby reason of the factâ that he
was an officer or director of HDI?
In accordance with 8 Del C. § 145, both the Indemnity Agreement and the
Companyâs Certificate of Incorporation limit advancement to those cases where Holley
was made a party to a lawsuit âby reason of the factâ that he is or was a director or officer
of the Company.28 Nipro contends that Holley cannot meet that requirement and
therefore is not entitled to advancement.
At the outset, Nipro argues that whether Holley was made a party to the SEC
Action âby reason of the factâ he was a director is a factual issue that precludes summary
judgment. I disagree. Advancement is a summary proceeding focused on determining
whether the claims asserted against an officer or director fall within the category of
claims that the corporation agreed to advance. Accordingly, in this case, the âby reason
28
Certificate of Incorporation Art. 8; Indemnity Agreement § 3.
17
of the factâ analysis requires looking to the allegations in the SECâs complaint.29 In that
regard, I note that courts often can determine whether the âby the reason of the factâ
requirement has been satisfied solely by examining the pleadings in the underlying
litigation, notwithstanding opposition from the defendant company. 30 From this
perspective, Niproâs argument that Holleyâs situation is no different than that of a janitor
who could have overheard inside information about the merger and then committed
securities law violations is unpersuasive. The SEC Complaint undeniably focuses on
Holleyâs position as chairman, including the breadth and depth of inside information to
which he had access as a result of his position.31 The allegations in the SEC Complaint,
29
A copy of the complaint in the SEC Action is attached as Exhibit D to Holleyâs
initial Verified Complaint (hereinafter âSEC Complaintâ).
30
See, e.g., Homestore, Inc. v. Tafeen, 888 A.3d 204, 214 (Del. 2005) (âThe limited
and narrow focus of an advancement proceeding precludes litigation of the merits
of entitlement to indemnification for defending one self in the underlying
proceedings. If it is subsequently determined that a corporate official is not
entitled to indemnification, he or she will have to repay the funds advanced.â);
Brown v. LiveOps, Inc., 903 A.2d 324, 330 (Del. Ch. 2006) (â[I]t is apparent from
the face of the complaint . . . that the claims asserted against [plaintiff] arise âby
reason of the factâ that he was a director or officer of [the company].â).
31
E.g., SEC Compl. ¶ 1 (âAlthough Holley owed a fiduciary duty to HDI and its
shareholders to maintain the confidence of the insider information, he nevertheless
provided the information to others with the intent that they purchase HDI stock on
the basis of his tips.â); id. ¶¶ 15-23 (describing Holleyâs access to the relevant
information as coming from his position as chairman and participation in
numerous high-level board meetings and negotiations regarding the HDI-Nipro
merger); id. ¶ 23 (âHolley knew, or was reckless in not knowing, that as Chairman
of the Board of Directors of HDI, he had a fiduciary duty to maintain the
confidentiality of all material, nonpublic information that he received relating to
HDI.â); id. ¶¶ 27, 31, 40, 42, 44, 47, 53 (alleging that Holley breached his
18
therefore, strongly support the conclusion that the âby reason of the factâ requirement is
satisfied in this case.
Nipro further contends that Holley committed the wrongs for which he was
accused in a personal capacity, not in a corporate capacity, making his official corporate
title beside the point. For a lawsuit to be brought âby reason of the factâ that the
defendant was an officer or director, there must be âa nexus or causal connection between
any of the underlying proceedings . . . and oneâs corporate capacity.â32 Citing this
Courtâs decision in Paolino v. Mace Security International, Inc., Nipro asserts that the
âby reason of the factâ element requires some use of corporate power to engage in the
alleged wrongs.33 According to Nipro, the wrongs Holley committed did not involve any
such use of corporate power.
Admittedly, certain suits between a corporation and its directors or officers do
involve solely personal, and not corporate, obligations, such that the âby reason of the
factâ requirement is not satisfied.34 This category of cases, however, is not as broad as
fiduciary duties by providing material, nonpublic information to others with the
intent that they trade on that confidential information).
32
Homestore, 888 A.3d at 214.
33
Paolino v. Mace Sec. Intâl, Inc., 985 A.2d 392, 403 (Del. Ch. 2009) (âSection 145
will not apply when the parties are litigating a specific and personal contractual
obligation that does not involve the exercise of judgment, discretion, or decision-
making authority on behalf of the corporation.â).
34
See Cochran v. Stifel Fin. Corp., 2000 WL 1847676, at *6 (Del. Ch. Dec. 13,
2000) (denying portion of indemnification claim for fees incurred in arbitration in
19
Nipro suggests.35 In advancement cases, the line between being sued in oneâs personal
capacity and oneâs corporate capacity generally is drawn in favor of advancement with
disputes as to the ultimate entitlement to retain the advanced funds being resolved later at
the indemnification stage.
As to the corporate capacity nexus, the ârequisite connection is established âif the
corporate powers were used or necessary for the commission of the alleged
misconduct.ââ36 Notwithstanding Niproâs assertion that no âcorporate powerâ was
necessary for Holley to commit the insider trading violations of which he has been
accused, the relevant case law indicates otherwise. âThis Court has held previously that
where the claims asserted against a defendant in an action are based on the misuse of
confidential information that the defendant learned in his or her official corporate
capacity, that action qualifies as being asserted âby reason ofâ that corporate capacity.â37
which employee was ordered to return excessive compensation amounts and repay
a loan to the company), affâd in part, revâd in part, 809 A.2d 555 (Del. 2002).
35
Indeed, the Court in Paolino explicitly observed that defendant corporations were
misreading cases like Cochran in an often unproductive effort to avoid paying the
mandatory advancement and indemnification to which they previously agreed.
Paolino, 985 A.2d at 404-07.
36
Id.at 406 (quoting Bernstein v. TractManager, Inc.,953 A.2d 1003, 1011
(Del.
Ch. 2007)).
37
Pontone v. Milso Indus. Corp., 100 A.3d 1023, 1052 (Del. Ch. 2014); see also
Brown, 903 A.2d at 330 (âThe gravamen of the underlying complaint is that [the
plaintiff] had access to proprietary information by reason of the fact that he was a
director and officer of [the company] and that he wrongly used that information
for his personal benefit.â); Scharf v. Edgcomb Corp., 2004 WL 718923, at *4
(Del. Ch. Mar. 24) (âAn essential component to [the plaintiffâs] potential insider
20
Recognizing that these cases generally favor granting Holley advancement, Nipro
attempts to distinguish them by arguing that the facts of this case essentially are sui
generis. Nipro points out, for example, that Holley personally derived no monetary
benefit from the alleged insider trading here. Instead, he communicated the inside
information to some of his family and friends. Even if that is true, however, Holley
obtained a personal benefit in terms of the gratification he received as a result of his
allegedly illegal beneficence. But, Niproâs principal counterargument is that the
Indemnity Agreement prohibits indemnification relating to violations of the federal
securities laws, or even claims of such violations, and that Holley has pled guilty to
insider trading. Those arguments are addressed in the next subsection. Otherwise, based
on the allegations in the SEC Complaint and the consistent position of Delaware case law
on this issue, I conclude that Holley is a party to the SEC Action âby reason of the factâ
that he served as a director of HDI.
trading liability was his access to [the companyâs] nonpublic information, and he
acquired that information âby reason of the factâ that he was a corporate officer
and director.â), revâd on other grounds, 864 A.2d 909 (Del. 2004); Perconti v.
Thornton Oil Corp., 2002 WL 982419, at *7 (Del. Ch. May 3, 2002) (âThe
inquiry, in these circumstances, is into whether the criminal scheme is alleged to
have employed the corporate powers (or, for example, confidential inside
information acquired through corporate status) conferred upon the officer by virtue
of his status.â). The same reasoning held true in the bygone era when the Superior
Court adjudicated corporate indemnification cases. Merritt-Chapman & Scott
Corp. v. Wolfson, 321 A.2d 138, 142 (Del. Super. 1974) (âThe charge [under Rule
10b-5] was based upon failure to disclose inside information. [The plaintiff]
participated in the plan, shared the inside information, and was prosecuted because
of his employment or agency relationship with [the company].â).
21
2. Does the Indemnity Agreement preclude indemnification and, therefore,
advancement for the claims asserted in the SEC Action?
Niproâs primary argument is that there can be no advancement where
indemnification is impossible. Citing Paolino, among other cases, Nipro contends that
advancement is only permissible in cases âin which indemnification theoretically could
be available.â38 The Delaware Supreme Court, however, has held that indemnification
and advancement âare separate and distinct legal actionsâ and that the âright to
advancement is not dependent on the right to indemnification.â39 Indeed, Niproâs
position that advancement necessarily is limited to situations that could qualify for
indemnification appears to be wrong as a matter of law.40 Even assuming Niproâs
premise is correct, however, the Company still would be required to advance Holleyâs
fees in the SEC Action.
Nipro focuses on a carve out in the Indemnification Agreement (the âCarve Outâ),
which provides that:
No indemnity pursuant to Section 2 or 3 hereof shall be paid
by the Corporation . . . on account of any claim against
[Holley] for an accounting of profits made from the purchase
or sale by [Holley] of securities of the Corporation pursuant
to the provisions of Section 16(b) of the Securities Exchange
Act of 1934 and amendments thereto (the âExchange Actâ),
38
Paolino, 985 A.2d at 398.
39
Homestore, 888 A.2d at 212.
40
Id. at 212-13 (âSection 145(e), however, expressly contemplates that corporations
may confer a right to advancement that is greater than the right to indemnification
and recognizes that advances must be repaid if it is ultimately determined that the
corporate official is not entitled to be indemnified.â).
22
or any violation of any federal, state, or foreign statutory laws
or regulations prescribing [sic] insider trading or similar
provisions of any federal, state, local or foreign law.41
Nipro raises two distinct arguments pertaining to the Carve Out. First, Nipro reads the
Carve Out broadly to preclude indemnification as to any claims against Holley for a
violation of the insider trading laws. Holley disputes that interpretation. And second,
according to Nipro, because Holley pled guilty to insider trading, he has committed a
proscribed act under the terms of the Carve Out, even as construed by Holley, and is not
entitled to indemnification. Nipro further argues that because Holley cannot qualify for
indemnification, the Company has no current obligation to advance him any fees.
a. The proper construction of the Carve Out
Niproâs arguments suffer from several shortcomings. First and foremost, Niproâs
textual position is flawed. Nipro interprets the Carve Out as precluding indemnification
âon account of any claim against [Holley] for . . . any violation ofâ insider trading laws,
whether or not he committed the alleged wrong. Holley advances a different construction
of this provision. In terms of what is relevant to this case, Holley construes the Carve
Out as precluding indemnification for costs and expenses incurred âon account of . . . any
violation ofâ insider trading laws. Under Holleyâs view, Section 4(a) of the Indemnity
Agreement prohibits indemnification in two separate situations: (1) an accounting action
under Section 16(b) of the Exchange Act; and (2) violations of insider trading laws.
41
Indemnity Agreement § 4(a).
23
Because Holley has moved for summary judgment and the parties disagree as to
the meaning of the Indemnity Agreement, I first must decide whether Section 4(a) is
ambiguous. If it is, this dispute probably cannot be decided on summary judgment. 42
Just because the parties to a contract interpret a particular provision differently does not
mean necessarily that the provision is ambiguous. âAmbiguity exists âwhen the
provisions in controversy are reasonably or fairly susceptible of different interpretations
or may have two or more different meanings.â Ambiguity does not exist, however,
simply because the parties disagree about what the contract means.â43 Thus, I must
examine each partyâs proposed interpretation of Section 4(a) to determine whether it is
reasonable.
Holley convincingly argues that Niproâs interpretation would result in an
indemnification provision that is contrary to the Delaware General Corporation Law
(âDGCLâ). Under the DGCL, indemnification of officers and directors of a corporation
is mandatory to the extent that the officer or director is successful. Specifically, Section
145(c) states:
To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this section, or in defense of any
claim, issue or matter therein, such person shall be
42
2009 Caiola Family Trust v. Dunes Point West Assocs., LLC, 2014 WL 1813174,
at *7 (Del. Ch. Apr. 30, 2014).
43
Id.(quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co.,616 A.2d 1192, 1196
(Del. 1992)).
24
indemnified against expenses (including attorneysâ fees)
actually and reasonably incurred by such person in
connection therewith.44
Under Niproâs interpretation of the Indemnity Agreement, the Company could not
indemnify any claim, however meritless, of insider trading. Thus, if the government filed
a patently frivolous lawsuit against Holley and Holley prevailed in having the case
dismissed, the Company would have no obligation to indemnify him, despite his success.
Under this scenario, Section 4(a) would violate 8 Del. C. § 145(c). Indeed, such an
interpretation of Section 4(a) would render it void and, therefore, would be unreasonable
as a matter of law.45 Accordingly, I find that the Carve Out is not ambiguous and
interpret its final clause to preclude indemnification only for violations of insider trading
laws.46
This position is bolstered by the other provisions of the Indemnity Agreement.
Aside from the Carve Out, the Indemnity Agreement provides indemnity âto the fullest
extent as may be provided to [Holley] by the Corporation under Delaware Law, the
44
8 Del. C. § 145(c) (emphasis added).
45
Paolino, 985 A.2d at 403 (âA bylaw provision that conflicts with a mandatory
provision of the General Corporation law . . . is ultra vires and void . . . . I will not
read the carve-out in a way that would render it invalid.â).
46
This interpretation comports with Niproâs own conduct. Nipro initially advanced
Holleyâs fees in connection with the SEC Investigation. The 2014 Florida Action
II seeks repayment of those fees on the grounds that Holley was not entitled to
them because he pled guilty to insider trading. But, if the Indemnity Agreement
prevents Nipro from advancing fees in any situation where insider trading is even
claimed, as Nipro now suggests, one would have expected Nipro to have refused
to advance Holley the fees for the SEC Investigation in the first place.
25
Certificate [of Incorporation] and the Bylaws.â47 Such provisions are relatively
common.48 In my view, only Holleyâs proposed construction of the Carve Out comports
with the Indemnity Agreementâs explicit instruction for making advancement and
indemnification available to the fullest extent allowed by Delaware law.
In sum, I find Niproâs interpretation of the Carve Out to be unreasonable. Thus,
the only reasonable interpretation of the Indemnity Agreement presented by the parties
that conforms to the language of the Carve Out is that it prohibits indemnification for
actual insider trading violations, but not for all claimed or alleged insider trading
violations.49 Adopting that construction of the Indemnity Agreement, I still must
47
Indemnity Agreement § 3(b).
48
E.g., Brown, 903 A.2d at 328 (quoting a nearly identical provision and interpreting
it to âprovide for mandatory advancement to the broadest extent possible under
Delaware lawâ).
49
Indeed, a reasonable argument can be made that the Indemnity Agreement requires
advancement without consideration of the Carve Out. The advancement clause
contains no restrictions and requires the Company to advance âall costs and
expenses . . . incurred by [Holley] in connection with such action, suit or
proceeding.â Indemnity Agreement § 8. As noted, advancement and
indemnification are distinct under Delaware law and it would not be inconceivable
for the Indemnity Agreement to provide broader advancement rights than
indemnification rights. If the Carve Out affects the Companyâs advancement
obligation at all, then, textually, it only could be by modifying the phrase âsuch
action, suit or proceeding.â None of those terms, however, appear in the Carve
Out. Instead, that phrase appears to be referencing Section 3 of the Indemnity
Agreement, which provides for extending indemnification rights as broadly as
allowed under Delaware law. Id. § 3; see also id. § 6 (â . . . in connection with any
action, suit or proceeding referred to in Section 2 or 3 hereof . . . .â) (emphasis
added). The language âaction, suit or proceedingâ originally derives from the
DGCL: âA corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or completed
26
consider the effect, if any, of Holleyâs guilty plea on his claim for advancement for the
SEC Action and for the other matters before me.
b. The effect of Holleyâs guilty plea on his claims for advancement
Nipro views Holleyâs guilty plea in the Criminal Action as conclusive on the
question of whether he may be entitled to indemnification in the SEC Action. Under the
interpretation of the Indemnity Agreement I adopted above, however, it is not a foregone
conclusion that Holley will need to repay any funds advanced in the SEC Action.
Despite his guilty plea, there are many ways in which Holley could be âsuccessful on the
merits or otherwise.â50 I focus first on the language âor otherwise.â As used in reference
to litigation, the term âsuccessfulâ bears no necessary connection to the term ânot guilty.â
The SEC could terminate the SEC Action, for example, for any number of reasons,
including a reprioritization of limited resources. Similarly, Holley could prevail on
procedural grounds. Thus, I find that Holley could otherwise âsucceedâ in the SEC
Action, within the meaning of Section 145(c), despite his guilty plea.51
action, suit or proceeding, whether civil, criminal, administrative or investigative
. . . .â 8 Del. C. § 145(a) (emphasis added). For purposes of the pending motion,
however, I need not decide that issue. Rather, I assume arguendo that the Carve
Out is relevant to construction of the Indemnity Agreementâs advancement
provision, and I have construed it as Holley proposes.
50
8 Del. C. § 145(c).
51
See Perconti, 2002 WL 982419, at *7-8 (describing situation where plaintiff
prevailed under 8 Del. C. § 145(c) when the United States Attorney dismissed all
charges following a mistrial caused by a hung jury, despite the fact the plaintiffâs
co-executive pled guilty to all charges); Merrit-Chapman & Scott Corp. v.
Wolfson, 321 A.2d 138, 141 (Del. Super. 1974) (awarding partial indemnification
27
Additionally, Holley need not be completely successful; the Indemnity Agreement
permits partial indemnification.52 The guilty plea only covered two instances of insider
trading involving up to three individuals.53 The SEC Action, however, involves six
tippees, at least three of whom were not covered by the guilty pleas. 54 Holley, therefore,
conceivably could succeed on the merits as to those aspects of the SEC Action.
Based on the foregoing, I conclude that it is possible that Holley eventually could
receive indemnification in the SEC Action. Thus, even assuming that Niproâs
advancement obligations are limited to theoretically indemnifiable situations, the
Indemnification Agreement requires Nipro to advance Holleyâs fees. Any fees or
expenses later found to have been advanced for matters as to which Holley is not entitled
to indemnification can be recouped at the indemnification stage.
3. Did Holley provide Nipro with a sufficient undertaking to repay any
advancement to which he was not entitled?
Nipro unconvincingly argues that Holley cannot receive advancement in the SEC
Action because his undertaking was insufficient. It is undisputed that Holley submitted
an undertaking in connection with the SEC Investigation. Nipro reads that undertaking,
after plaintiffs were convicted by jury on the second retrial on some, but not all,
counts alleging an insider trading scheme).
52
Indemnity Agreement § 6.
53
Compl. ¶¶ 27, 32-33.
54
SEC Complaint ¶¶ 40-51.
28
however, as covering only the SEC Investigation and not the subsequent SEC Action. I
reject this argument as illogical and contrary to precedent.
Our case law has recognized that complex litigation contains many related stages.
In Sun-Times Media Group, Inc. v. Black,55 then-Vice Chancellor, now-Chief Justice
Strine determined the meaning of the phrase âthe final disposition of such action, suit or
proceedingâ in Section 145(e) of the DGCL. A virtually identical phrase appears in the
Indemnity Agreementâs advancement clause.56 The corporation in Sun-Times contended
that its advancement obligations terminated after a jury verdict was returned in a criminal
trial; the former officers argued that the corporation owed them advancement through a
final appeal. Noting the parallel language in Section 145(e) and the corporationâs
indemnification bylaw, as well as a bylaw stating that advancement would be available to
the âfullest extent permitted by applicable law,â the Court determined that the dispute
between the parties was really about the scope of Section 145(e). Honing in on the term
âfinal disposition,â the Court analyzed relevant precedent, Blackâs Law Dictionary, and
the policies underlying advancement. Against this backdrop, the Court concluded that
âan action, suit or proceeding refers to a discrete administrative or judicial matter
involving a particular subject and encompasses all its stages, and that the final disposition
55
954 A.2d 380 (Del. Ch. 2008).
56
Indemnity Agreement § 8 (â . . . the final disposition of any action, suit or
proceeding . . . .â).
29
of such an action, suit or proceeding occurs when its outcome is no longer subject to any
further review as of right.â57
Niproâs position runs contrary to Sun-Times. The SEC Action is a continuation of
the SEC Investigation. Like most serious litigation efforts, an investigation of the
potential merits preceded the filing of the SEC Action. Niproâs averment that SEC
procedures differ so substantially from normal civil litigation that they warrant requiring
separate undertakings for the SEC Investigation and the SEC Action is unpersuasive.
Additionally, I note that adopting Niproâs position would produce uncertainty and
engender an increase in advancement litigation over when and how many undertakings an
officer or director must supply for the same overall proceeding. Based on the reasoning
of Sun-Times, which Nipro neglected to cite in the portion of its brief relevant to this
argument (but which it did cite elsewhere), I reject Niproâs challenge to the adequacy of
Holleyâs undertaking.
4. Does either laches or public policy preclude Holley from receiving
advancement?
Nipro rather weakly asserts a laches argument, suggesting that Holleyâs demand
for advancement comes too late and that Nipro has been prejudiced by the delay. Besides
being insufficiently briefed and argued, the procedural history of Holleyâs litigation
odyssey provides a cogent explanation as to why Holley is just now seeking advancement
for the SEC Action which was originally filed January 13, 2011. Nipro did advance
57
Sun-Times, 954 A.2d at 396.
30
Holleyâs fees during the SEC Investigation until November 2010. Not long after the SEC
filed the complaint initiating the SEC Action in January 2011, that matter was stayed so
the Criminal Action could proceed. Holleyâs counsel represented at oral argument that
the SEC Action was in the earliest procedural phases and only recently had required the
expenditure of time and money.58 Accordingly, there was no need for Holley to seek
advancement for the SEC Action much before May 2014, when he filed this action,
because there was no need for Holleyâs attorneys to devote time to that case until
recently.59
Finally, Nipro argues that allowing Holley to obtain advancement in the
circumstances of this case would violate public policy. Nipro grounds its argument on
the DGCLâs prohibition against indemnifying âa party who did not act in good faith or in
the best interests of the corporation.â60 Relying on Holleyâs guilty plea and the
accompanying plea colloquy, Nipro asserts that it has been established conclusively that
Holley acted willfully and not in the best interests of the Company. Niproâs exasperation
at the prospect of continuing to pay Holleyâs fees, given the facts of this case, is
understandable. Unfortunately for Nipro, however, its argument is inconsistent with the
rights granted to its directors under the DGCL.
58
Arg. Tr. 21-22 (counsel for Holley).
59
Holleyâs Complaint also seeks advancement as to the 2014 Florida Action II, but
the timeliness of his Complaint cannot seriously be questioned in that regard.
60
8 Del. C. § 145(a).
31
The simple answer to Niproâs argument is that indemnification and advancement
are separate issues. If the SEC pursues its case against Holley and triumphs, then the
state-of-mind limitations of 8 Del. C. § 145(a) will come into play. But if Holley
succeeds, on the merits or otherwise, he will not have to repay the money initially
advanced. DGCL § 145(c) does not have a state-of-mind limitation. As demonstrated by
subsection (a) of Section 145, the Legislature knew how to add a requirement, when it so
intended, that the director or officer must have acted in the corporationâs best interests.
The absence of such a requirement in subsection (c), therefore, can only be viewed as
deliberate. Requiring a âcorporate officer seeking indemnification under Section 145(c)
to demonstrate that he pursued his course of conduct for the benefit of the corporation . . .
would limit the rights clearly conferred by Section 145(c) in a manner that was not (but
could have been) included in the legislative standard.â61
Finally, in terms of public policy, I note that this Memorandum Opinion concerns
only Holleyâs right to advancement. At the indemnification stage, he may be required to
repay Nipro some or all of the money advanced. As to the motion presently before me,
however, neither the DGCL nor any relevant precedent suggests that advancing Holleyâs
fees would violate the public policy of this State.
5. Is Holley entitled to advancement for the 2014 Florida Action II?
Holley also has moved for summary judgment on his claim for advancement as to
the 2014 Florida Action II. Nipro spent minimal time in its briefing contesting Holleyâs
61
Perconti, 2002 WL 982419, at *4.
32
right to advancement for that action. The 2014 Florida Action II stems from the
advancements of attorneysâ fees Nipro made during the SEC Investigation. Nipro now
claims that Holley was not entitled to that money and wants it back. Holley denies
Niproâs claims. Based on the record before me, I find that the 2014 Florida Action II is
an advanceable proceeding. Holley is defending a suit brought to recover previously
advanced funds. Nipro advanced those funds to Holley in the first place because it
presumably concluded he had a right to them as HDIâs chairman. Furthermore, Holleyâs
obligation to return those funds, if any, arises from the fact that, as HDIâs chairman, he
was a party to the Indemnity Agreement.
Niproâs apparent defense to Holleyâs advancement claim in this regard is that, if I
adopt its broad interpretation of the Carve Out in Section 4 of the Indemnity Agreement,
then I also should find that Niproâs suit against Holley in the 2014 Florida Action II
relates to Holleyâs insider trading scheme and, therefore, does not qualify for
advancement. For the reasons discussed in Section III.B.2 supra, however, I rejected
Niproâs interpretation of the Indemnity Agreement. In addition, Holley executed a proper
undertaking for the 2014 Florida Action II. I find, therefore, that Holleyâs defense of that
proceeding is advanceable. Thus, I conclude that Holley also is entitled to advancement
for his reasonable fees and expenses incurred in defense of the 2014 Florida Action II.
IV. FEES ON FEES
Under the Indemnity Agreement, if the Company fails to pay a proper request for
advancement or indemnification, Holley can sue. That agreement further provides that
Holley, âin such enforcement action, if successful in whole or in part, shall be entitled to
33
be paid also the expense of prosecuting his claim.â62 Pursuant to DGCL § 145, however,
this Court âwill âonly award that amount of fees that is reasonable in relation to the
results obtained.ââ63 Here, that calculation is simple: Holley succeeded in defeating a
motion to dismiss or stay and succeeded in establishing on a motion for partial summary
judgment his right to advancement in the SEC Action and the 2014 Florida Action II.
These were the only subjects of this Memorandum Opinion. Accordingly, Holley
prevailed on every issue currently before the Court. Thus, Holley is entitled to 100% of
the reasonable âfees on feesâ he incurred in this advancement proceeding with respect to
his claims for advancement, including his opposition to Niproâs motion to dismiss or stay
this action.64
V. CONCLUSION
For the foregoing reasons, I hold as follows: (1) Niproâs motion to dismiss or stay
is denied; (2) Holleyâs motion for partial summary judgment on his advancement claims
as to the SEC Action and the 2014 Florida Action II is granted; and (3) Holley is entitled
to 100% of his fees on fees to date in pursuing his claims for advancement in this action.
IT IS SO ORDERED.
62
Indemnity Agreement § 9.
63
Pontone, 100 A.3d at 1058(quoting Schoon v. Troy Corp.,948 A.2d 1157, 1176
(Del. Ch. 2008)).
64
This ruling, however, does not apply to, and is without prejudice to, Holleyâs
claims in this action for indemnification.
34