Confederate Motors, Inc. v. Terny

859 F. Supp. 2d 181, 2012 WL 1378643, 2012 U.S. Dist. LEXIS 54891
CourtDistrict Court, D. Massachusetts
DecidedApril 19, 2012
DocketCivil Action No. 11-10213-JGD
StatusPublished

This text of 859 F. Supp. 2d 181 (Confederate Motors, Inc. v. Terny) is published on Counsel Stack Legal Research, covering District Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Confederate Motors, Inc. v. Terny, 859 F. Supp. 2d 181, 2012 WL 1378643, 2012 U.S. Dist. LEXIS 54891 (D. Mass. 2012).

Opinion

ORDER ON DEFENDANT’S RULE 57 MOTION SEEKING SPEEDY DECLARATION OVER ADVANCEMENT OF FEES

DEIN, United States Magistrate Judge.

I. INTRODUCTION

This matter is before the court on Defendant’s “Rule 57 Motion Seeking Speedy Declaration Over Advancement of Fees.” (Docket No. 122). By his motion, Francois-Xavier Terny (“Terny”) seeks a declaration, under Count VI of his Amended Counterclaim “that he is immediately entitled to advancement from Confederate of his costs and fees paid to date in litigating this action, and that any such amounts that are incurred going-forward will similarly be due and owed to him by Confederate upon demand.” (Docket No. 122). Terny [184]*184asserts that he is entitled to advancement based on Delaware law, Del.Code Ann. tit. 8, § 145, and Article Tenth of Confederate’s Amended and Restated Certificate of Incorporation. Confederate opposes the motion on the grounds that Delaware courts allegedly have exclusive jurisdiction over such claims, that Temy’s status as a director is disputed, that the claims in this litigation do not relate to Terny’s conduct as a director, and that Terny has not established that the fees for which he is requesting advancement are reasonable. (See Docket Nos. 124, 137).

For the reasons detailed below, Terny’s “Rule 57 Motion Seeking Speedy Declaration Over Advancement of Fees” (Docket No. 122) is ALLOWED IN PART and DENIED IN PART. This court holds that it has jurisdiction over the request for advancement, and that Terny is entitled to an advancement for fees incurred in connection with challenges to his actions as an alleged director of Confederate. However, a great deal of this litigation, including all of Terny’s counterclaims, relate to his status as either a shareholder or an independent consultant. Therefore, further proceedings are necessary to determine what fees should be reimbursed and advanced, in accordance with this court’s order detailed below.

II. STATEMENT OF FACTS

“The key question” in a summary advancement action such as this “is whether the plaintiff seeking advancement is facing claims that are subject to his advancement right, a determination that can, in this case and in most cases, be based on a review of the pleadings against him in the actions for which advancement is sought.” Fasciana v. Elec. Data Sys. Corp., 829 A.2d 160, 167 (Del.Ch.2003). See also DeLucca v. KKAT Mgmt., L.L.C., No. Civ.A. 1384-N, 2006 WL 224058, at *6 (Del.Ch. Jan. 23, 2006) (“Advancement eases are particularly appropriate for resolution on a paper record”), and cases cited. Consequently, the facts described herein are derived principally from the Third Amended Complaint (“Compl.”) (Docket No. 70) and the First Amended Counterclaim (“CC”) (Docket No. 119), with some supplementation with undisputed facts.

Confederate is a publicly traded corporation involved in designing and manufacturing handcrafted street motorcycles. H. Matthew Chambers was the Chief Executive Officer of Confederate and the Chairman of the Board of Directors. (See Compl. ¶ 1; CC at Introduction). According to Terny, in late 2008, Confederate and Chambers contacted him to provide financing for the company in exchange for stock. (CC ¶ 10). Terny accepted the offer and, as Confederate acknowledges, “[o]n April 16, 2009, Defendant Terny was appointed by the Chairman of the Board, Matt Chambers, to fill a vacant Board of Directors Position[.]” (Comply 1). By September 2009, Terny had invested $450,000 in exchange for 300,000 shares of stock. (CC at ¶ 28).

Also in September 2009, Terny and Confederate entered into a Consulting Agreement, pursuant to which Terny acquired an additional 505,000 shares of Confederate stock. (Id. at ¶ 32). According to Terny, the Consulting Agreement called for him to “work with the Company to form the distribution channels for all the worldwide retail stores for distribution of the Company’s motorcycles, work with the company to decrease the material costs necessary to produce its motorcycles, and such other services to and for the Company as may be reasonably requested from time to time by the Company.” (Id.).

Soon thereafter, disagreements arose between Terny and Chambers regarding Confederate’s business operations. (Id. at [185]*185¶¶ 44-49). In particular, Terny objected to Chambers’ proposal for a new motorcycle line, the appointment of new directors, and the acceptance of a $750,000 loan to relocate the company to New Orleans, Louisiana. (Id.). As a result of this disagreement, on January 5, 2010, Terny sent an email to Chambers, which stated in relevant part as follows:

I have no intention to continue working like this, and certainly no intention to be part of the plan outlined below.... I’ve hence decided to quit as a “consultant” (and give back any share), publicly resign as Boardmember, and put back my shares on the market to liquidate my investment in Confederate.

(Docket No. 1, Ex. D). Confederate argues that the email constituted Terny’s official resignation from the Board of Directors, which Terny denies. (CC ¶ 50; Compl. ¶ 1)

Despite this email, on March 12, 2010, Terny was given an agenda for an upcoming annual Board meeting scheduled to be held on March 16, 2010, along with a waiver of notice of the meeting for him to sign. (CC ¶ 52, Ex. B). Terny attended the meeting on March 16, 2010, where the parties discussed a new motorcycle line, the appointment of new directors and a $750,000 loan to relocate to New Orleans, Louisiana. (Comply 1). According to Confederate, Terny asserted his disapproval of the new plan and refused to provide his consent, which was needed for the company to move forward. (Id.). According to Terny, Chambers refused to listen at the meeting, but rather ranted and raved at Terny, and the meeting “essentially dissolved without any action” being taken. (CC ¶ 57).

By letter dated April 5, 2010, Confederate purported to “confirm and accept in writing [Terny’s] resignation of January 5th, 2010 as director and consultant of Confederate Motors, Inc. effective as of said date.” (Docket No. 1, Ex. E). A few days later, on April 8, 2010, Confederate commenced this suit against Terny in the United States District Court for the Northern District of Alabama, Southern Division, which was eventually transferred to this court.1 (Docket No. 1). While the litigation was pending, in late April 2010, Terny was sent a notice of an annual shareholder meeting scheduled for May 15, 2010. (CC ¶ 52). He was also listed as a holder of 805,000 shares of Confederate stock in the company’s 10 K which was filed with the SEC and dated May 17, 2010. (Id.). It was not until Confederate filed an 8K with the SEC on November 17, 2010, that it was reported to the SEC that Terny had been replaced on the Board. (Id. ¶ 83).

As described more fully below, Confederate’s Amended and Restated Certificate of Incorporation authorizes the company to advance expenses, including attorneys’ fees, incurred by present or former directors in defending civil or criminal actions. (PI. Ex. 8).2 Terny has made several demands for payment under this provision, but has not itemized the amounts he is seeking.

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Bluebook (online)
859 F. Supp. 2d 181, 2012 WL 1378643, 2012 U.S. Dist. LEXIS 54891, Counsel Stack Legal Research, https://law.counselstack.com/opinion/confederate-motors-inc-v-terny-mad-2012.