An Eckert Seamans associate prepared this overview.
The Court of Chancery issued two opinions relating to a web of advancement and indemnification claims brought on behalf of multiple, separate plaintiffs: (1) Meyers v. Quiz-Dia LLC, C.A. No. 9878-VCL (Del. Ch. Jan. 9, 2017); and (2) Meyers v. Quiz-Dia LLC, C.A. No. 9878-VCL (Del. Ch. Jan. 10, 2017). A previous blog post summarized the Chancery Court’s December 2, 2016 order to stay certain indemnification claims pending a determination as to arbitrability in the same case.
The January 9, 2017 Memorandum Opinion:
In the January 9, 2017 Memorandum Opinion, the Court concluded from an analysis of contractual drafting history that the plaintiffs were not entitled to advancement and indemnification. This decision is important because it addresses the relatively rare instance in which the Court will consider extrinsic evidence. Of cautionary note, draft agreements with attorney comments were discoverable under the circumstances.
Background: An in-depth overview of the background of this litigation can be found here. The plaintiffs, previously affiliated with a non-party parent entity, Quiznos, brought suit asserting entitlement to advancement and indemnification from the defendant subsidiaries pursuant to multiple agreements. The parties filed cross-motions for summary judgment regarding the question of whether the defendants assumed advancement and indemnification obligations. The Court explained that the claims turned on whether the defendants assumed the obligations pursuant to a post-restructuring Assignment, Assumption, and Release Agreement (the “Assignment Agreement”).
Court’s Analysis: The Assignment Agreement was subject to New York law. Under New York law, contracts should be construed in accordance with the parties’ intent. To determine whether the parties intended for defendants to assume the obligations, the Court conducted an extensive analysis of the drafting history of the Assignment Agreement.
The Assignment Agreement was prepared during the restructuring negotiations and contained two separate deal points: (1) a release of any claims that the post-restructuring entities might have against the sell-side parties, and (2) the assumption and continuation of indemnification rights. The parties drafted the Assignment Agreement late in the restructuring process after negotiating multiple contracts, including a principal restructuring agreement.
Because the Assignment Agreement was ambiguous as to which entities were to assume the obligations, the Court was permitted to consider extrinsic evidence regarding the parties’ intent. Thus, the Court reviewed deposition testimony and considered the parties’ multiple agreements. The Court reviewed draft versions of the agreements, including attorney comments, and it read the documents as a whole.
Conclusion: After considering drafting history, context provided by the multiple agreements, and deposition testimony, the Court held that the defendants did not assume the indemnification and advancement obligations. Therefore, the Court granted summary judgment in the defendants’ favor as to certain non-stayed claims left in the case.
The January 10, 2017 Memorandum Opinion:
Background: The Court’s January 10, 2017 Memorandum Opinion addressed a motion to vacate its November 30, 2016 order dismissing certain indemnification claims as premature pending related litigation in Colorado (the “Colorado Action”). The plaintiffs had advancement claims pending simultaneously in the Delaware court.
Parties’ Arguments: The moving plaintiffs argued that because the Colorado Action had been dismissed, and the dismissal was affirmed by the appellate court, there was a final disposition in the Colorado Action. Therefore, the plaintiffs argued that their indemnification claims became ripe in Delaware.
Court’s Analysis: The Court explained that although the federal appellate court affirmed dismissal in the Colorado Action, the deadline to petition the U.S. Supreme Court for a writ of certiorari does not pass until March 13, 2017. As long as the decision in the Colorado Action is not final, outstanding Delaware advancement claims were ripe. However, when the decision in the Colorado Action becomes final, the Delaware advancement claim will be moot, and the indemnification claims will become ripe.
The Court reiterated that advancement and indemnification are distinct legal concepts. A claim for advancement is a summary proceeding, and ordinarily, the Court would not await developments in another jurisdiction before adjudicating an advancement claim. However, in the present action, questions had been raised about the ability of the Court to rule on the plaintiffs’ advancement rights, as the plaintiffs did not produce detailed invoices in support of their claims until after the discovery cutoff. The Court also pointed out that the plaintiffs were well-off and another plaintiff was funding their litigation efforts. Additionally, the plaintiffs’ legal representation was not compromised by the lack of advancement to date. Therefore, the Court determined that the plaintiffs would not suffer harm if it withheld a decision on advancement and indemnification until it was clear whether the Colorado Action would proceed to the Supreme Court.
Conclusion: Citing its inherent authority to control its own docket, the Court denied the plaintiffs’ motion to vacate. The Court explained that whether the plaintiffs had a right to advancement or indemnification would soon become clear pending a final determination in the Colorado Action. Therefore, the Court stayed further outstanding advancement and indemnification claims in the interim.