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Chancery Court Modifies Advancement Award Based on Changed Circumstances

By Francis G. X. Pileggi, Esq.

Duthie v. CorSolutions Medical, Inc., et al., No. 3048-VCN (Del. Ch., June 16, 2009), read opinion here.  A prior Chancery Court decision in this advancement case, which also provides more background facts,  has been summarized on this blog here.
 

Overview

This Chancery Court decision discusses in detail the conceptual and public policy basis for an important aspect of the right to advancement. In particular, a prior decision in this case recognized that the right to advancement includes the right to have legal fees advanced for purposes of pursuing affirmative defenses, mandatory counterclaims, and other 'good offense' aspects of an effective defense to claims made against an officer or a director to whom advancement rights must be provided. The prior decision at the above link  provides details regarding the multiple litigations in multiple fora that the parties in this matter have engaged in. Footnote 1 in the instant decision provides citations to court rulings in several jurisdictions that have been rendered in this case.

Key Part of Ruling and Background

The important nugget to be taken from this relatively short letter decision is that the right to advancement can be modified based on changes in factual circumstances involved when a prior order granting advancement rights was made. Specifically, in this case, the court had ordered advancement rights to be provided in order for the plaintiff in this matter to pursue affirmative claims that the court determined were defensive in nature and were for purposes of responding to and offsetting claims that were pending against the plaintiff in a separate forum. See Duthie v. CorSolutions Medical, Inc., 2008 WL 4173950 (Del. Ch., Sept. 10, 2008)(link is above for this case). More specifically, the court held that the right to advancement included fees incurred in connection with a defamation action that was filed by an accused director. That action also included claims for tortious interference with prospective economic advantage and violations of ERISA that were affirmatively made in response to the alleged retaliation by  the ex-director's employer via the improper termination of health care benefits and allegedly defamatory statements made against the director to whom the advancement rights were owed.

Reasoning

In sum, in this most recent ruling in this case, the Chancery Court relied on the representation that the defendants did not intend to bring any other actions against the ex-director. It was those suits against the ex-director which had been the genesis of the affirmative claims for which the court ordered advancement, and based on the fact that the justification for the advancement of fees and expenses incurred in pursuing the affirmative claims no longer existed, the court agreed to modify its prior award and amend the prior decision granting advancement, such that the court concluded that the plaintiffs are no longer entitled to advancement of fees and expenses associated with their affirmative claims.

The court reasoned that no threat now exists, thus the defamation claims that were pursued as a defense are no longer a direct response to, nor negation of, any claims against the plaintiffs. In order to be defensive, the court reasoned, and thus subject to advancement, the 'affirmative claims must be responsive to some actual threat,' but the threat here is ended, thus the court emphasized that there could be no right to advancement of fees and expenses for affirmative claims that were designed to defeat a threat that no longer existed. See Donahue v. Corning, 949 A.2d 574, 579 (Del. Ch. 2008) (see summary here); Zaman v. Amedeo Holdings, Inc., 2008 WL 2168397, at * 37 (Del. Ch., May 23, 2008) (see summary here). The court also clarified in footnote 10 that the doctrine of the 'law of the case' does not prohibit the court from modifying a prior award when the facts on which the prior decision was made have materially changed.

Conclusion

The prior award of advancement for the costs of affirmative claims was modified.

Full post as published by Delaware Corporate and Commercial Litigation Blog on June 21, 2009 (boomark / email).