The recent Delaware Chancery Court opinion in Ephrat v. medCPU, Inc., C.A. No. 2018-0052-MTZ (Del. Ch. June 26, 2019), remains noteworthy for two reasons, notwithstanding the large number of advancement decisions interpreting DGCL Section 145 appearing on these pages over the last 14 years:
(1) It provides an anthology of prior Delaware decisions granting advancement to former directors or officers to defend claims regarding the use of confidential information acquired in their prior corporate capacity; and,
(2) The opinion adds nuance to the existing abundant case law interpreting the threshold phrase “by reason of the fact”, which is one of the statutory prerequisites that must be satisfied for advancement claims to prevail.
- Despite the conduct at issue taking place post-termination, the “by reason of the fact” requirement of § 145 was satisfied because the underlying case involved the use of “Confidential Information” acquired while the former D&O was acting in his corporate capacity. (Although some conduct did not qualify and, thus, only partial advancement was granted).
- This opinion compiles and discusses all the reported Delaware decisions that address the above circumstances in the § 145 context, and distinguishes one case, Lieberman, that does not grant advancement. See footnotes 42, 52, 56 and 69. See also page 19 which explains why Lieberman should be distinguished and why it is contrary to the great weight of authority on this issue.
- The court also contrasts disputes relating to covenants-not-to-compete, and explains why those employer v. employee disputes typically involve personal disputes not in one’s corporate capacity–citing cases so holding. See footnote 74.