Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 40 years, prepared this article.

The Court of Chancery recently ruled that Genesis CMG Holdings LLC cannot cosmetically re-word its non-compete violation charges against an ex-director/officer of the direct advertiser to avoid its obligation to advance funds for his defense in the underlying action in, Theodore Barr v. Genesis CMG Holdings, LLC, C.A. No. 2025-0981-SEM (Del. Ch. Dec. 23, 2025).

 Vice Chancellor Paul Fioravanti Jr.–who had been overseeing the advancement suit and the company’s initial claim that after resigning, ex-officer Theodore Barr tried to pirate key information and personnel from Genisis–gave a Magistrate the authority to decide dueling motions in the advancement action.  She granted Barr’s summary judgment motion on grounds that despite the re-wording, the nature of the non-compete action’s claims remained essentially the same. 

The ruling is important for corporate law as well as director and officer insurance specialists because it was decided largely based on which guidepost Chancery opinion it most resembled regarding the ability of a defendant company to reword a complaint in a way that renders it no longer eligible for advancement of defense funds: 

Carr v. Global Payments Inc.,

The Magistrate found that  Genisis’ motion to dismiss the advancement suit after the company re-worded its underlying non-compete complaint should be denied because it was akin to Carr v. Global Payments where the Court of Chancery ruled,  because “[t]he gravamen of the underlying complaint [was] that [the individual] had access to proprietary information by reason of the fact that he was a director and officer  and that he wrongly used that information for his personal benefit,” this Court denied the corporation’s motion to dismiss the individual’s advancement claim.”  Carr v. Global Payments Inc., 2019 WL 6726214, (Del. Ch. Dec. 11, 2019)

 Brown v. LiveOps, Inc.,

“Far from the concessions made in Carr, the amendments in the Underlying Action are largely cosmetic,” the Senior Magistrate noted in distinguishing the Genisis amended complaint and granting plaintiff Barr’s motion for summary judgment on the advancement issue.  In Brown v. LiveOps, the corporation had sued a former officer and director for violating “its contractual and intellectual property rights by operating a competing business” formed after the individual left the corporation, the Senior Magistrate said, noting that, in doing so, it pled that many of the competitive acts occurred before the individual left the corporation. 

“Unlike the defendant in Carr, the Defendant has not removed any cause of action, abandoned any theory of liability, or added new facts inconsistent with advancement.”  Brown v. LiveOps, Inc., 903 A.2d 324, 325 (Del. Ch. 2006).

Background

Plaintiff Theodore Barr co-founded Converze Media Group, LLC a California-based media agency that developed and executed direct response advertising strategies for its clients but sold his 45% equity interest in Converze to the Defendant and entered into an Amended and Restated Limited Liability Company Agreement with the defendant in 2023.  Under the LLC Agreement, Barr was named as an initial director of the Defendant, and entered into an employment agreement to serve as the Chief Client Officer .

It was that role and Barr’s acknowledged intimate knowledge of Converze’s business that sparked the company’s underlying suit alleging that he later misused his ability to adversely affect Converze after he sold his stock and began an allegedly competing business.  Genesis CMG Holdings, LLC v. Simplicity Media, LLC, C.A. No. 2025-0676-SEM.

But when Barr sought advancement of defense costs in that action, Converze amended and re-worded its complaint regarding his alleged violations of the non-compete pact, claiming that as amended the charges were no longer based on actions that arose from his director/officer role, so Barr is no longer entitled to advancement.

Mooted?

In her December 23 ruling on the dueling advancement motions, the senior magistrate  said at oral argument, the Defendant’s attorney conceded that, to some extent, the Initial Complaint in the Underlying Action was drafted in such a way that it could be interpreted as related to or arising out of the Plaintiff’s performance of his duties, but  contended that that the Amended Complaint “fixed the issue and cut off any post-amendment advancement.”   

The Court disagreed. “Delaware law recognizes the ability of a defendant corporation to moot an advancement dispute by removing any [claims] that would trigger an advancement right ,” the Senior Magistrate said, noting the Chancery Court’s decision in Mooney v. Echo Therapeutics, Inc., 2015 WL 3413272, (Del. Ch. May 28, 2015);

However, that ability is limited by the Carr ruling that looks to substance over form. “The mere relabeling of claims will not support [denying advancement] when the underlying litigation remains substantially the same,” she added.  Besides that, the parties agreed that   8 Del. C. § 145 is comparable and under that standard, “if there is a nexus or causal connection between any of the underlying proceedings . . . and one’s official corporate capacity, those proceedings are by reason of the fact . . .without regard to one’s motivation for engaging in that conduct,” the court said, referring to In re Genelux Corp., 2015 WL 6390232, (Del. Ch. Oct. 22, 2015).

Fees on fees?

Granting Barr’s fees petition, the Senior Magistrate held, “This Court awards fees on fees when a plaintiff successfully shows an entitlement to advancement that wrongfully was withheld by the defendant corporation.”