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Delaware Chancery Court Reaffirms Liberal Interpretation of Mandatory Indemnification Statute, Grant Summary Judgement in Favor of Former CFO

In Horne v. OptimisCorp, C.A. No. 12268-VCS (Del. Ch. March 3, 2017), the Chancery Court granted plaintiff William Horne’s (“Horne”) motion for summary judgment, holding that his demand for indemnification of fees and costs he incurred in connection with the successful defense of a case brought by defendant OptimisCorp against him and others were reasonable on their face.   The court granted summary judgment in favor of Horne, awarding in excess of $1 million in litigation costs and expenses incurred in the underlying action and in connection with the prosecution of the indemnification action, and interest on such amounts.

In OptimisCorp v. Waite, plaintiff William Horne, the former CFO of OptimisCorp, was one of several defendants in extensive litigation centering on an alleged conspiracy to overthrow the CEO of OptimusCorp, Alan Morelli (the “CEO”).  The CEO had been removed from his position as a result of sexual harassment allegations made by an employee, but challenged his removal and was eventually reinstated.  Horne was terminated two months later.

Following Horne’s termination, the CEO initiated an action alleging that Horne, as CFO of OptimisCorp, along with directors of OptimisCorp, bribed such employee to make false accusations against the CEO in order to provide cause for his removal.  The claims against Horne included breaches of fiduciary duty to the company and breaches of a stockholders agreement.  However, the CEO presented limited evidence against Horne and the trial court rejected all claims against him.

Horne then initiated this indemnification action and filed a motion for summary judgment, seeking to recover costs of the underlying lawsuit, in addition to “fees on fees” incurred in the subsequent action.  OptimusCorp argued that (1) not all of the claims in the underlying action against Horne were by reason of the fact that he was an officer of the company, (2) some of the fees incurred by Horne were for work advancing positions beneficial to other defendants who lacked indemnification rights, and (3) that it was entitled to discovery in order to challenge the reasonability of Horne’s attorney’s fees.

Regarding OptimusCorp’s first argument, the court stated that the “by reason of the fact” standard is met as long as there is “a nexus or causal connection between any of the underlying proceedings . . . and one’s official corporate capacity.”  The court held that this standard was easily met because the breach of fiduciary duty claims stemmed from Horne’s position as CFO of OptimusCorp, and because the statements allegedly causing the breach of the stockholders agreement were held to have been taken in compliance with Horne’s fiduciary duties.

Regarding OptimusCorp’s second argument, the court noted that it would only review strategy decisions that were “unmistakably unreasonable” or “clear abuse.”  It then stated that although some of the work done by Horne’s counsel did benefit all defendants, the work was not done with the intent to benefit the other defendants, and none of the other defendants were billed for such work.  Horne’s counsel fees were held to be reasonable.  Additionally, the court held that OptimusCorp had done nothing to justify its request for discovery in an effort to pick apart counsel’s bill.

Ultimately, the court entered summary judgment in favor of Horne for legal fees and expenses incurred in the underlying litigation, the legal fees and expenses incurred in the action to recover the mandatory indemnification, and pre-judgment and post-judgment interest.

Horne v. OptimisCorp, C.A. No. 12268-VCS (Del. Ch. March 3, 2017).

Copyright 2019 K & L Gates

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About this Author

Megan A. Wotherspoon, KL Gates, domestic business lawyer, cross border mergers attorney
Partner

Ms. Wotherspoon practices primarily in the areas of business and corporate law, with an emphasis on domestic and cross-border mergers and acquisitions of both private and public companies, private equity and venture capital transactions, and corporate restructuring, formation, and governance matters. She regularly assists clients with the drafting of a broad range of contracts, including with respect to commercial supply arrangements. Additionally, Ms. Wotherspoon has also represented numerous borrowers in various types of financings. 

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Tami L. Mack, KL Gates, mergers and acquisitions attorney, general corporate matters lawyer
Associate

Tami Mack is an associate in the firm’s Pittsburgh office. She focuses her practice on mergers and acquisitions and general corporate matters.

Prior to joining the firm, Ms. Mack was a corporate legal intern for a global retailer. She served as a teaching assistant in legal research and writing at Duquesne University School of Law, and participated in Duquesne’s study abroad program at China University of Political Science and Law in Beijing. Additionally, Ms. Mack was a summer associate in the firm’s Pittsburgh office in 2015.

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