Key Delaware decisions on advancement under DGCL Section 145 for directors and officers were highlighted in a just-published book chapter in an ABA publication that I co-authored with 5 of my colleagues in the Delaware office of Lewis Brisbois. This is the 8th year that I have highlighted key advancement cases for a book chapter for the ABA.

Links to other advancement decisions highlighted over the last 19 years on this blog, as well as prior ABA book chapters on this topic are available on these pages.

A recent gem of a short letter ruling from the Delaware Court of Chancery in Goldman v. LBG Real Estate Company LLC, C.A. No. 2023-0426-KSJM (Del. Ch., Feb. 26, 2024), provides important insights, with citations to authority, on three noteworthy topics of widespread relevance to corporate litigators:

  • California courts find “Delaware law on advancement particularly persuasive because of the depth of its experience with corporate governance issues.”  Slip op. at 2 and footnote 6 which cites to several cases (other citations omitted).
  • Like Delaware, California allows fees on fees proportionate to the degree of success of a claimant.  See Slip op. at 2 and footnote 7 (citing cases).
  • This letter ruling was in the context of a motion for reargument under Rule 59(f), and the fact that the court made quick work of the motion in a 3-page decision is an indication of how much of an uphill battle such motions usually are.

This post was prepared by Andrew J. Czerkawski, an associate in the Delaware office of Lewis Brisbois, who is scheduled to be sworn in to the Delaware Bar in December 2023


          In Hoffman v. First Wave Biopharma, Inc., 2023 Del. Ch. LEXIS 378 (Del. Ch. Sep. 27, 2023), the Delaware Court of Chancery determined that board actions did not trigger a fellow director’s mandatory advancement right.

Background

          Hoffman served on the board of directors of First Wave Biopharma, Inc. (the “Company”). After a soured acquisition, the target’s stockholder representative sued the Company.  The resulting settlement discussions contemplated the Company paying the stockholder representative $1.5 million.

          During the relevant period, the Company’s board discussed and decided to raise an additional $4 million, not planning to tell the public for some months. Yet, a former stockholder nevertheless learned of the planned equity raise and leveraged that information to increase the settlement amount with the stockholder representative by another $1 million.

          The Company’s board concluded that Hoffman, the Plaintiff, leaked the information.  Though the board “had no concrete evidence,” the board drew this conclusion because (i) the planned equity raise remained non-public information and (ii) only Hoffman “had a positive relationship” with the former stockholder.  In turn, and out of fear of further leaks, the board established a committee comprising all the directors except Hoffman.

          Disagreeing with his exclusion, Hoffman retained counsel and exchanged a series of correspondence with the Company, including a Section 220 demand, ultimately resulting in an indemnification and advancement request.  Though it produced responsive book and records, the Company claimed the Plaintiff breached his fiduciary duties and denied any indemnification or advancement.  The captioned litigation ensued.

Arguments

          Neither party disputed that the Plaintiff’s director status afforded him certain mandatory advancement rights under a separate indemnification agreement with the Company.  But only defined “covered proceedings” triggered that right. The issue was whether an “investigation” and an “inquiry” was conducted in order to trigger a covered proceeding.

          The Plaintiff contended that because the Company concluded he leaked the non-public information and therefore breached his fiduciary duty, “the [Company] necessarily must have conducted an ‘investigation’ and/or ‘inquiry’ into [the Plaintiff’s] actions.”  Thus, the Plaintiff contended, because the Company conducted either an investigation and/or inquiry, the Company triggered the Plaintiff’s mandatory advancement right. The Company contended “it never undertook an investigation or inquiry into [the Plaintiff’s] conduct.”

Court’s Analysis and Findings

          The Court determined that the board took no steps to confirm the belief that the Plaintiff leaked the information and found that “the Company did not investigate or otherwise conduct an inquiry into [the Plaintiff].”  The Court ultimately held that because “the Company directors started from the conclusion that [the Plaintiff] leaked” the non-public information, the Company’s actions were “corrective actions from that conclusion, not investigative actions undertaken in reaching that conclusion.”  Thus, because the Company only took “remedial, not investigatory” actions to assuage their fear of further leaks, the board’s response fell “short of an ‘investigation’ or ‘inquiry’ sufficient to trigger [the Plaintiff’s] advancement rights.”

          The Court, as it often does, turned to dictionary definitions in order to ascertain the plain meaning of the words “investigation” and “inquiry.”  Relying on these definitions, the Court denied the Plaintiff mandatory advancement, holding: these definitions require “more positive action, pomp, and procedure than one individual’s immediate deductive conclusion based on known facts.”

Takeaway

       The Plaintiff might have succeeded in procuring advancement from the Company if the language setting forth the events triggering his advancement right included broader categories.  For instance, if the clause included “conclusion, accusation, or contention of the Company,” then the board’s actions, though falling short of “investigation” or “inquiry,” would nevertheless still likely rise to the level of a “conclusion, accusation, or inquiry” sufficient to trigger the mandatory advancement right. 

This post was prepared by Andrew J. Czerkawski, an associate in the Delaware office of Lewis Brisbois, who is scheduled to be sworn in to the Delaware Bar in December 2023.

In Tilton v. Stila Styles, LLC, 2023 Del. Super. LEXIS 772 (Del. Super. Ct. Sep. 19, 2023), the Delaware Superior Court found an advancement claim unripe.

Tilton served as the sole manager of Stila Styles, LLC, a single-member Delaware LLC (the “Company”).  When the Company’s sole member removed her as manager, the Plaintiff challenged her removal in the Court of Chancery, lost, appealed, and lost again.

Tilton, the Plaintiff, sent the Company completely redacted legal fee invoices.  The Company in turn requested unredacted copies. The Plaintiff sent back partially redacted copies but on the same day filed a complaint against the Company seeking in the Superior Court, inter alia, her outstanding fees and expenses the Company did not advance pending the appeal of the Court of Chancery suit.

The Court determined that the Plaintiff “prematurely” sought a judgment on the pleadings and brought an “unripe” advancement claim.  In doing so, the Court admonished: “Rather than provide [the Company’s] counsel with an opportunity to determine the reasonableness of [the Plaintiff’s] advancement requests, [the Plaintiff] precipitously sought court intervention.”  The Court further advised: “[t]hese are the exact sort of litigation tactics that unnecessarily burden the Court and vitiate what would otherwise be a good faith petition for judicial relief.”

 Finding the advancement claim “unripe,” the Court instructed that “[the Plaintiff’s] counsel frustrated any viable process to resolve the advancement requests in good faith by providing partially redacted invoices the same day that they filed the instant action, seeking payment of those entries.”  The Court ordered the parties to meet and confer on the advancement claim because “[w]hether the entries themselves are reasonable or not is a factual dispute, and until the parties meet and confer on a good faith basis to resolve the advancement demands, moving for judgment on the pleadings is not ripe, and hence, improper.”

Takeaways: First, before filing a complaint, the party seeking advancement should provide the board with invoices redacted only as necessary to preserve any privilege.  Second, the party seeking advancement should wait until the board responds, or, if the board returns no timely response, the party seeking advancement should wait a reasonable amount of time in which a board could otherwise respond. 

This article was prepared by Frank Reynolds, who has been following Delaware corporate law and writing about it in various publications for more than 35 years

The Delaware Court of Chancery has ruled that the contempt sanction of a $1,000-a-day fine is an appropriate means of forcing Hone Capital LLC to comply with the Court’s previous order to advance funds for an ex-officer’s defense of Hone’s charges that she fraudulently managed an investment  fund in Gandhi-Kapoor v. Hone Capital LLC  and CSC Upshot Ventures I LLP, No. 2022-0881-JTL Opinion issued  (Del. Ch., July 19, 2023).

Among the many cases on advancement highlighted on these pages over nearly two decades, this decision is especially noteworthy for, among other things, emphasizing the public policy reasons behind advancement and the serious consequences that might follow for not fulfilling advancement obligations–as determined by the Court to be owed.

Vice Chancellor Travis Laster’s July 19 opinion granted former Hone CFO Purvi Gandhi-Kapoor’s motion to hold Hone and its CSC Upshot Ventures I LLP fund in contempt for flouting his earlier summary judgment decision that they had no excuse for their seven month-long failure to honor an advancement agreement   He decided that the circumstances justified a fine, not as a punishment, but as just enough coercion to obtain compliance with the court order when irreparable harm was on the horizon.  And the ruling warned that a receiver could be used to force compliance.

In a decision affecting corporate and insurance law specialists, the court found that although “contempt is not generally available to enforce a money judgment,” the holder of this advancement judgment need not resort to slower collection mechanisms because, “The right to advancement is a time-sensitive remedy…A lack of timely advancements prejudices the covered person’s ability to defend the underlying litigation, potentially resulting in irremediable consequences, such as an adverse judgment or a conviction.”

Background

Gandhi-Kapoor was a member of limited liability company Hone, served as its Chief Financial Officer, and had the title of Partner. At Hone, she reported to Bixuan Wu and together with Wu, managed the Upshot Fund.

For disputed reasons, the CSC Group, the parent of Hone, terminated Wu. Gandhi-Kapoor resigned, and in 2020, caused Hone to file a lawsuit against Gandhi-Kapoor in California Superior Court accusing her of breach of fiduciary duty and fraud. That action was consolidated with Gandhi-Kapoor’s California declaratory judgment suit seeking a ruling that she was entitled to a percentage of the Upshot fund’s profits as promised compensation.

The Court awarded summary judgment in April in Gandhi-Kapoor’s advancement suit against both Hone and Upshot, at which time they owed nearly $1 million in submitted fees but neither has contested any of the billed amounts nor paid anything, the vice chancellor ruled.  He said seven months had passed since Gandhi-Kapoor had made what has been found to be a valid demand for advancement.  The companies unsuccessfully argued that there was no proof of irreparable harm.

Contempt petition ruling

In response to Gandhi-Kapoor’s petition for a contempt ruling, the Vice Chancellor decided that, “Advancement provides corporate officials with immediate interim relief from the personal out-of-pocket financial burden of paying the significant on-going expenses inevitably involved with investigations and legal proceedings,” citing Homestore, Inc. v. Tafeen (Tafeen III), 888 A.2d 204, 211 (Del. 2005). The proceeding is summary, he said, because “immediate interim relief” must be provided in timely fashion to be effective since the advancement award “is also an interim monetary award, akin to an interim award of alimony or an interim fee award,” and “the covered person faces a threat of irreparable harm.”

The Vice Chancellor said Delaware entities are not required to provide advancement, but if they chose to, they may be compelled through contempt rather than collection procedings to make paymemts if:

*The companies are actually found to be in contempt, and “To establish civil contempt, [the movant] must demonstrate that the [opponent] violated an order of the court of which they had notice and by which they were bound.” Handels AG v. Johnston, 1997 WL 589030, at *3 (Del. Ch. Sept. 17, 1997). The standard of proof required in a civil contempt proceeding is a preponderance of the evidence, and there is no longer any doubt that the companies are in contempt, he ruled.

*The remedy is appropriate. “If the primary purpose of the remedy is to coerce compliance with the court’s order, then the remedy is civil in character.” But he noted, “a court is obligated to use the least possible power adequate to the end proposed.” TR Invs., LLC v. Genger, 2009 WL 4696062, at *18 n.74 (Del. Ch. Dec. 9, 2009).

The appropriate remedy

The Vice Chancellor said he could have chosen to use the court’s “broad power” to force advancement order compliance by employing a receiver to utilize the respondent companies’ assets to provide Gandhi-Kapoor the awarded funds—especially where there was a history of refusal without valid reason.  Delaware laws that govern corporations and limited liability companies alike urge the courts to endow the receiver with just enough power to effect compliance.

Vice Chancellor Laster took that limited power principle a step further.  He noted that Gandhi-Kapoor had submitted a new brief in support of immediate relief in the form of a daily fine, but he decided that at least initially, he could impose the fine without employing a receiver to do it.  He calculated that Hone gained $658 per day by retaining the money it owed to Gandhi-Kapoor for her defense so the $1K per-day fine would be an incentive to pay up.

However, considering new information from Gandhi-Kapoor indicating that Hone might be selling or restructuring to put assets out of the Court’s reach, he held the door open for the future appointment of a receiver with appropriate power to cope with that situation.

The recent Delaware Court of Chancery decision in Krauss v. 180 Life Sciences Corp., C.A. No. 2021-0714-LWW (Del. Ch. Mar. 7, 2022), addressed nuances of advancement law that will be useful to those who labor in the field of corporate litigation dealing with these issues that are crucial to officers and directors.

The key points of law that makes this decision blogworthy are twofold: (i) it serves as a reminder that some compulsory counterclaims may be eligible for advancement; and (ii) it reinforces the longstanding interpretation in Delaware of the phrase that serves as a prerequisite to providing advancement, with an origin in § 145 of the Delaware General Corporation Law, and which was used in the provision of the Bylaws at issue in this case–namely, whether the person seeking advancement was sued “by reason of the fact” that she was an officer.

Advancement has been a frequent topic of commentary on these pages over the last 17 years, and has been the subject of many articles and book chapters published by this writer.

Background:

Unlike the corporate charter involved in this case, the advancement provision in the Bylaws of the company involved did not require board approval for advancement to be given for certain types of proceedings.

Highlights:

Perennially, one of the more common defenses to a claim for advancement, and often the least successful argument–as in this case–is whether the prerequisite to the provision for advancement in the Bylaws was triggered to the extent that the litigation for which advancement was sought was prosecuted: “by reason of the fact that . . . [the plaintiff] is or was a director or officer of the company.”  See Slip op at 8-9 and n.32.

As the Court explained, the foregoing phrase is broadly interpreted by Delaware courts, and many published decisions have explained in many different ways why it is very easy to satisfy that condition of advancement, despite may failed attempts by companies to use it as a defense.  See Id. at 9-10.  See also footnotes 32-37.

Also noteworthy in this case is the reminder that the court will not typically make a determination at the advancement stage about an allocation between legal fees that must be advanced–and intertwined claims in the same case that are not subject to advancement.  But rather, the parties should follow the procedure in the Danenberg v. Fitracks  decision to make advancement payments based on the good faith allocation of the parties, and a final allocation will be made at the end of the case.  See Slip op. at 12 and footnotes 44-45.

Another noteworthy aspect of this case is the reminder that compulsory counterclaims are covered by the right to advancement when asserted to defeat or offset an underlying claim that is subject to advancement.  See Slip op. at 20 and footnote 74-81.

 

During the 17 years or so of this blog’s existence, we have featured many Delaware decisions on the topic of indemnification and advancement for directors and officers, interpreting a company’s obligations to make those payments pursuant to Delaware General Corporation Law (DGCL) Section 145, in addition to contract-based claims for advancement and indemnification. See also several book chapters I have published on advancement and indemnification as the Chair of the Indemnification and Advancement Subcommittee of the ABA Business Law Section’s Corporate Litigation Committee.  Enough background, and now for the main event:

The purpose of this short post is to make note of a consequential amendment, recently passed by the Delaware Legislature and signed by Gov. Carney, to DGCL Section 145, which as amended allows Delaware companies to use a captive insurance company to provide coverage for directors and officers–such as for purposes contemplated by Section 145–but with a few key exceptions. Relevant to this statutory amendment is a recent Delaware Supreme Court decision that concluded: Delaware’s statutory indemnification provisions allow corporations to purchase D&O insurance “against any liability,” whether or not the corporation has the power to indemnify against such liability.  

One of Delaware’s favorite nationally recognized corporate law scholars and one of the leading indigenous Delaware firms have provided exemplary commentary on this new development in corporate law. Those interested in this development should also read the reliably thoughtful insights by D&O insurance expert Kevin LaCroix on his widely-read blog, The D&O Diary.

 

The current issue of the Delaware Business Court Insider includes an article on the titular topic by yours truly and my colleague Cheneise Wright. Courtesy of the good folks at the Delaware Business Court Insider, and with their permission, it appears below.

Chancery Declines to Follow First-Filed Rule in Advancement Case

By: Francis G.X. Pileggi*
and
Cheneise V. Wright**

A recent Delaware Court of Chancery opinion applied an exception to the general rule that Delaware courts will often exercise their discretion to dismiss or stay a Delaware action in favor of a first-filed action between the parties that is pending in another jurisdiction. In Lay v. Ram Telecom International, Inc., C.A. No. 2021-0631-SG (Del. Ch. Oct. 4, 2021), the court analyzed the nuances of the first-filed rule regarding an advancement case under Section 145 of the Delaware General Corporation Law.

The first-filed rule, often referred to as the McWane doctrine, based on the Delaware Supreme Court decision in McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281, 283 (Del. 1970), provides that a Delaware court’s “discretion should be exercised freely in favor of the stay when there is a prior action pending elsewhere, in a court capable of doing prompt and complete justice, involving the same parties and the same issues.”

The background of the Lay case involves a demand letter sent in early June of 2021 seeking indemnification and advancement of fees and expenses incurred in defending an action the defendant had filed against the plaintiffs in the Superior Court of California. Instead of responding, five days after that letter was sent, the defendant amended their complaint in California to add a claim for declaratory relief, asking the California court to make a ruling on the indemnification and advancement issues. About a month later, the plaintiffs filed the Delaware suit seeking advancement for fees and costs incurred in the California Action.

In early August, the defendant filed a motion seeking a stay or dismissal of the Delaware advancement case in light of the California Action. Briefing was completed on the motion to stay or dismiss by Sept. 27, 2021. The court distinguished prior Delaware decisions that stayed advancement actions in favor of a first-filed action in which the same indemnitee had already asserted advancement rights. See Johnston v. Caremark RX, Inc., 2000 WL 354381, at * 2-5 (Del. Ch. Mar. 28, 2000). In contrast, the court cited to its decision in Fuisz v. Biovail Technologies, Ltd., 2000 WL 1277369, at * 4 (Del. Ch. Sept. 6, 2000), in which the court denied a stay of an advancement action where the prior action was not filed by the indemnitee.

The Court of Chancery also applied the reasoning in the Fuisz case in which the plaintiffs sought advancement under Section 145(k) for a Virginia action in which they had already asserted their advancement rights as an affirmative defense, but notably did nothing to obtain any relief from the Virginia court on the basis of that defense. The court explained in Fuisz that “unless the person having such an entitlement first actively invokes the jurisdiction of a foreign tribunal and seeks an adjudication of that issue from it . . . this court will not regard the foreign action as ‘first-filed’ for purposes of McWane’s comity-based analysis.” Id. at * 1.

The court in the instant case supported its decision not to apply McWane by noting that the plaintiffs in this case did not select California as the forum and they made no effort to obtain an adjudication from the California court of any of the issues presented in this action. Rather, “it was the defendant in this action who sought a declaratory judgment in the California action concerning the plaintiff’s advancement and indemnification rights.”

The court emphasized the importance to its holding of the fact that the defendant amended the California Action to add a declaratory relief claim after the plaintiffs sent a demand for advancement and indemnification. The court underscored that it would be inequitable to allow any plaintiff that receives an advancement demand from a defendant to circumvent the right to a summary advancement proceeding in Delaware under Section 145(k) by simply amending its complaint in the other forum to add a declaratory relief claim on the advancement issue upon receiving a demand. Instead, the court ruled: “that is not our law.”

The court explained that the first-filed rule under the McWane doctrine does not apply because in this instance the California Action should not be considered a first-filed action.

The court also distinguished a very recent Chancery decision which stayed an advancement action in favor of a federal action even though the plaintiff in the federal action had not claimed advancement. See Harmon 1999 Descendants’ Trust v. CGH Investment Management, LLC, 2021 WL 4270220 at * 3 & n.12 (Del. Ch. Sept. 21, 2021). The court explained why the Harmon case was inapplicable. In Harmon, the court reasoned that the federal action was “in its penultimate phase” and an issue before the federal court was whether the person seeking advancement was a limited partner. That issue was a “material, factually rife, and disputed issue” in the advancement action. Therefore, the Court of Chancery held in that case that because the federal court was likely to resolve the factual issue before the Court of Chancery could, efficiencies would be gained by staying the Delaware suit in favor of the federal action.

In contrast, the pending motion to stay or dismiss did not identify any “material, factually rife and disputed issue” that had to be decided in the California Action before the question of advancement could be resolved in the Court of Chancery, nor does the motion to dismiss in Delaware argue that the California Action is in its “penultimate phase.”

In sum, the Court of Chancery held that the motion to stay or dismiss did “not present exceptional circumstances warranting a departure from the rule that claims under Section 145(k) for advancement of expenses should not be stayed or dismissed in favor of the prior pending foreign litigation that gave rise to them.” Thus, the Court of Chancery declined to stay the Delaware Action in favor of the California Action.

In a concluding footnote the court regaled readers with the entertaining linguistic observation that in addition to not being in its penultimate phase, the California Action did not appear to be in an antepenultimate or even a pre-antepenultimate phase.

____________________________________________________________________________
*Francis G.X. Pileggi is the managing partner of the Delaware office of Lewis Brisbois Bisgaard & Smith LLP, and the primary author of the Delaware Corporate and Commercial Litigation Blog at www.delawarelitigation.com.

**Chenesie V. Wright is a corporate and commercial litigation associate in the Delaware office of Lewis Brisbois Bisgaard & Smith LLP

A recent Delaware decision addressed the request for a claw-back of legal expenses that a company was ordered to advance to an LLC manager in a prior Court of Chancery decision. In the case styled: New Wood Resources, LLC v. Baldwin, C.A. No. N20C-10-231-AML-CCLD, Order (Del. Super. Aug. 23, 2021), the Complex Commercial Litigation Division of the Delaware Superior Court determined that pursuant to the terms of an LLC Agreement (for which the Delaware LLC Act allows much greater latitude than Section 145 of the Delaware General Corporation Law on this issue), the court determined that some of the amounts advanced were required to be returned.

Most noteworthy, however, about this decision, is that the court determined that the undertaking to repay the amounts advanced did not apply to the “fees on fees” that the Court of Chancery had also required that the company pay in the prior advancement action. The court explained that the undertaking only applied to “funds advanced,” but that undertaking did not apply to the repayment of “fees on fees” because the court reasoned that “such sums constitute indemnification, rather than advancement.” Order at 12. [Readers should be aware that in Delaware, court decisions issued by Order may also be cited in briefs, even if the decision is not a formal opinion.] See footnote 43 (judge explains that even though the parties did not raise the distinction between advancement and indemnification in connection with the claw-back arguments, the court determined that: it was “compelled by principles of comity to raise the issue sua sponte about the “fees on fees” that the Court of Chancery ordered the company to pay which should be considered differently from the advancement ordered by the court and governed by the undertaking.”)

This post was prepared by Frank Reynolds, who has been following Delaware corporate law, and writing about it for various legal publications, for over 30 years.

The Delaware Chancery Court recently denied as premature Stimwave Technologies Inc.’s motion to recoup $1.2 million in legal fees it had allegedly been tricked into advancing to its ex-CEO in defense of the medical device maker’s breach-of-duty charges against her and her director husband in Perryman et al. v. Stimwave Technologies Inc. No. 2020-0079-SG, opinion issued (Del. Ch. April 15, 2021).

Vice Chancellor Sam Glasscock’s April 15 letter-to-counsel opinion found that although Laura and Gary Perryman signed a joint agreement to repay any advancement that a court decided they didn’t deserve, and Vice Chancellor Glasscock had previously found Laura likely forged her advancement contract, that did not entitle Stimwave to recoup funds from joint marital assets or offset deserved payments to Gary.

The decisions should be of interest to attorneys involved with start-up companies which are often begun and run by families who may offer investors unique roles in corporate governance in return for financing.

Background

Vice Chancellor Glasscock’s Dec. 9, 2020 decision had turned on the novel issue of whether the ex-CEO and director had complied with an STI charter change that purportedly gave investors in the company’s Series D Preferred stock, voting as a separate stock class, power to nullify a director or officer’s transactions, including indemnification pacts and advancement for their actions. Perryman et al. v. Stimwave Technologies Inc. No. 2020-0079-SG, memorandum opinion issued (Del. Ch. Dec. 9, 2020).

He found that Laura apparently doctored her agreement to make it look like it predated the charter change, falsely clearing her for advancement. That prompted Stimwave’s recoupment motion.

The vice chancellor said his April 15 decision on the rare recoupment issue was guided by the Delaware Supreme Court’s seminal opinion in Kaung v. Cole Nat. Corp., 884 A.2d 500, 509 (Del. 2005) — which found that recoupment for fees improperly advanced is premature if brought before the indemnification liability is determined, and that is the case here.

Laura Perryman was a founder and CE0 of the Tucson-based marketer of wireless micro size injectable medical devices from when it was re-chartered in Delaware in 2010 until November 2019 when she was asked to step down amid a Department of Justice investigation.

Laura sent the STI board an email the next day with an attachment that she identified as her indemnification agreement dated January 1, 2018 and based on that document, the board agreed to pay for her attorney bills for the investigation.

But the next month, STI filed its own complaint against its ex-CEO claiming she breached her fiduciary duties by directing employees to alter bills to falsely make it appear they had been paid and later added a charge that she misused company funds to pay her son’s apartment rent and bonuses to favored employees.

The decision on recoupment

The court said both Stimwave’s entitlement to and practical ability to obtain disgorgement are “fraught with difficulty” since Laura has no real estate and less than $50,000 in liquid assets rendering her apparently unable to repay and Stimwave has no right to access Gary’s assets, or to offset advancement in this context.

“Delaware has, ever since 1852, repudiated the doctrine of coverture,” he noted. “Since that time—a decade, I note, before the Civil War—this Court has recognized women as juridical persons, full citizens with property rights separate from those of their husbands.”

And allowing a set-off of debt owed to an entity, even one owed directly by an indemnitee, against his advancement rights “is unwarranted and would defeat the purpose of advancement, which is to provide individuals with an incentive to provide corporate services and allow them to defend a claim that they may not be able to fund themselves, pending indemnification,” the vice chancellor ruled.

Finally, the entire issue of recoupment is premature because, “the question of indemnification has not yet been litigated, much less determined, and whether Stimwave may recoup its improperly advanced fees will depend on that determination,” he said in denying the motion without prejudice.