Holley v. Nipro Diagnostics, Inc.

• Court: Court of Chancery of Delaware
• Decided: December 23, 2014
• Docket: CA 9679-VCP
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

: GEORGE H. HOLLEY, : : Plaintiff, : C.A. No. 9679-VCP : v. : : NIPRO DIAGNOSTICS, INC., a : Delaware corporation, f/k/a/ HOME : DIAGNOSTICS, INC., a Delaware : corporation, : : Defendant. : :

MEMORANDUM OPINION

Submitted: August 6, 2014 Decided: December 23, 2014

Arthur L. Dent, Esq., Kevin P. Shannon, Esq., Matthew F. Davis, Esq., POTTER, ANDERSON & CORROON LLP, Wilmington, Delaware; Kevin H. Marino, Esq., John D. Tortorella, Esq., John A. Boyle, Esq., MARINO, TORTORELLA & BOYLE, P.C., Chatham, New Jersey; Attorneys for Plaintiff George H. Holley.

Francis G.X. Pileggi, Esq., ECKERT SEAMANS CHERIN & MELLOTT, LLC, Wilmington, Delaware; Attorneys for Defendant Nipro Diagnostics, Inc.

PARSONS, Vice Chancellor. This is yet another advancement case in which a company disputes its obligation

to pay the attorneys‘ fees of an officer or director during the course of litigation. The

plaintiff pled guilty to two counts of criminal insider trading relating to tips given to

family and friends about the impending acquisition of the company he founded.

Previously, the plaintiff had signed an indemnification agreement specifically excluding

any obligation of the company to indemnify the plaintiff for insider trading and other

securities violations. Several civil suits have followed and continue to be litigated,

including three initiated by the company‘s acquirer and one brought by the Securities and

Exchange Commission (―SEC‖), relating to various insider trading allegations and the

plaintiff‘s rights to advancement and indemnification.

The defendant has moved to dismiss or stay this case in favor of an allegedly first-

filed action in Florida that seeks to recoup money initially advanced to the plaintiff by the

company. The plaintiff has moved for partial summary judgment on those counts of his

Complaint that seek advancement of legal expenses incurred in defending against the

related civil litigation and fees on fees. For the reasons that follow, I conclude that the

defendant‘s motion to dismiss or stay should be denied and that the plaintiff‘s motion for

partial summary judgment should be granted.

1 I. BACKGROUND1

Plaintiff, George H. Holley, was the founder and chairman of Home Diagnostics,

Inc. (―HDI‖), a Delaware corporation.

Defendant, Nipro Diagnostics, Inc. (―Nipro‖ or the ―Company‖), is a Delaware

corporation. On February 3, 2010, Nipro signed a merger agreement to acquire HDI

through an all cash tender offer. The merger agreement became effective on March 15,

2010, at which time HDI‘s Certificate of Incorporation was amended and restated. Upon

acquiring HDI, Nipro assumed its predecessor‘s obligations, which include the

advancement provisions at issue here.

A. The Underlying Lawsuits

Shortly after the announcement of the Nipro–HDI merger, the SEC began an

investigation of suspicious trading in the stock of HDI at or around the time of the merger

announcement (the ―SEC Investigation‖). On May 20, 2010, Holley requested, by letter,

that HDI advance his legal fees and expenses in the SEC Investigation. Concurrently,

Holley executed an undertaking whereby he promised ―to repay to the Company the

amount of such expenses so advanced if it shall ultimately be determined that [he is] not

entitled to be indemnified by the Corporation as authorized by the Company‘s Certificate

of Incorporation, its Bylaws, any agreements of Indemnification, or applicable law.‖2

1 Unless otherwise noted, the facts recited herein are drawn from the well-pled allegations of the Amended and Supplemental Verified Complaint (the ―Complaint‖), together with its attached exhibits. 2 Compl. ¶ 12.

2 Nipro began advancing Holley‘s fees and expenses relating to the SEC Investigation in

June 2010. By November 2010, Nipro had advanced roughly $175,000 to Holley‘s

counsel.

The first of several relevant lawsuits was filed in early 2011. On January 13,

2011, the SEC commenced an action against Holley in the U.S. District Court for the

State of New Jersey in which it charged him with violating federal securities laws by

disclosing material non-public information about the imminent Nipro–HDI merger to six

friends, relatives, or employees (the ―SEC Action‖). The SEC Action, although it was

stayed for a substantial period of time, is ongoing.

A contemporaneous criminal investigation by the New Jersey United States

Attorney‘s Office (―NJ USAO‖) resulted in a grand jury indicting Holley on February 4,

2011, in the U.S. District Court for the State of New Jersey. The government accused

Holley of, among other things, orchestrating and executing an insider trading scheme in

violation of federal law (the ―Criminal Action‖). The NJ USAO sought and, on August

19, 2011, obtained a stay of the SEC Action. Early procedural events led to the dismissal

of certain counts against Holley in the Criminal Action. At trial, in August 2012, after

the government had rested its case and before the defense began its case, the court

granted Holley‘s motion for acquittal on two additional counts of the indictment.

Thereafter, Holley and the government reached a plea agreement, pursuant to which

Holley agreed to plead guilty to two counts of insider trading in exchange for the

government dismissing three other counts, including wire fraud, witness tampering, and

obstruction of justice. The judge in the Criminal Action sentenced Holley to probation.

3 On November 19, 2012, Nipro commenced an action against Holley (the ―2012

Florida Action‖) in the U.S. District Court for the Southern District of Florida (the

―Florida Court‖). In the 2012 Florida Action, Nipro sought, among other relief, to recoup

the funds advanced to Holley in connection with the SEC Investigation under theories of

breach of contract and unjust enrichment, notwithstanding the fact that the SEC Action

was still pending. Nipro argued that Holley was precluded from receiving

indemnification, and therefore advancement as well, in defending against the actions

taken by the SEC due to the terms of a previously executed indemnification agreement he

had with HDI (the ―Indemnity Agreement‖). Nipro further asserted that keeping the

advanced funds would be a violation of Holley‘s undertaking and, therefore, amount to

unjust enrichment.

On May 15, 2013, Holley sought advancement from Nipro relating to the ongoing

SEC Action and partial indemnification commensurate with his success in the Criminal

Action. An undertaking to repay accompanied his demand letter. Nipro did not provide

Holley with any of the requested advancement or indemnification. On June 19, 2013, the

Florida Court dismissed the 2012 Florida Action without prejudice for lack of subject

matter jurisdiction, apparently based on a pleading error. The Florida Court subsequently

denied a motion by Nipro to reopen the 2012 Florida Action. Holley renewed his

requests for advancement and indemnification on July 16, 2013.

On April 21, 2014, Nipro filed another action against Holley in the Florida Court

(the ―2014 Florida Action I‖). In that litigation, Nipro reasserted only its claims for

breach of contract and unjust enrichment based on Holley‘s retention of the previously

4 advanced funds. On June 17, 2014, the Florida Court dismissed the 2014 Florida

Action I because the civil action form filed with the complaint failed to identify a

substantially related, previously filed case—i.e., the 2012 Florida Action.

Not to be deterred, on the same day, June 17, 2014, Nipro filed another action in

the Florida Court (the ―2014 Florida Action II‖), reasserting the same complaint that it

had filed in the 2014 Florida Action I. On June 20, 2014, Holley demanded that Nipro

advance him the legal fees and expenses he would incur in defending the 2014 Florida

Action II. Although Holley had provided the requisite undertaking, Nipro rejected his

demand.

B. Procedural History of This Case

On May 21, 2014, after the filing of the 2014 Florida Action I, but before it was

dismissed, Holley filed his complaint in this action. In that complaint, Holley asserted

the right to receive advancement from Nipro for the SEC Action and the 2014 Florida

Action I, as well as indemnification for certain fees and expenses he incurred in the

Criminal Action and the 2012 Florida Action. On June 20, following the Florida Court‘s

dismissal of the 2014 Florida Action I and Nipro‘s filing of the 2014 Florida Action II,

Holley filed the currently operative Complaint in this action, which was amended to

include a claim for indemnification for fees incurred in the 2014 Florida Action I and a

claim for advancement for the 2014 Florida Action II.

Minutes before Holley filed his amended Complaint here, Nipro had moved to

dismiss or stay this action in favor of the 2014 Florida Action I. Nipro later amended its

motion to seek instead to have this action dismissed or stayed in favor of the 2014 Florida

5 Action II. Also on June 20, Holley moved for partial summary judgment on his

advancement claims. The parties fully briefed in parallel both Nipro‘s motion to dismiss

or stay and Holley‘s motion for partial summary judgment.3 I heard argument on those

two motions on August 6, 2014 (the ―Argument‖).

II. MOTION TO DISMISS OR STAY

A. Standard of Review

―It has long been held in Delaware that, ‗as a general rule, litigation should be

confined to the forum in which it is first commenced, and a defendant should not be

permitted to defeat the plaintiff‘s choice of forum in a pending suit by commencing

litigation involving the same cause of action in another jurisdiction of its own

choosing.‘‖4 Thus, ―[u]nder the [McWane] first-filed rule, this Court freely exercises its

broad discretion to grant a stay ‗when there is [1] a prior action pending elsewhere, [2] in

a court capable of doing prompt and complete justice, [3] involving the same parties and

the same issues.‘‖5

3 Briefing on the motion to dismiss consists of Defendant‘s Opening Brief (―Def.‘s MTD Br.‖), Plaintiff‘s Opposition Brief (―Pl.‘s MTD Opp‘n‖), and Defendant‘s Reply Brief (―Def.‘s MTD Reply‖). Briefing on the motion for partial summary judgment consists of Plaintiff‘s Opening Brief (―Pl.‘s SJ Br.‖), Defendant‘s Opposition Brief (―Def.‘s SJ Opp‘n‖), and Plaintiff‘s Reply Brief (―Pl.‘s SJ Reply‖). 4 Transamerica Corp. v. Reliance Ins. Co. of Ill., 1995 WL 1312656, at *3 (Del. Super. Aug. 30, 1995) (citing McWane Cast Iron Pipe Corp. v. McDowell- Wellman Eng’g Co., 263 A.2d 281, 283 (Del. 1970)). 5 In re Bear Stearns Cos. S’holder Litig., 2008 WL 959992, at *5 (Del. Ch. Apr. 9, 2008) (quoting McWane, 263 A.2d at 283).

6 Under McWane, however, the parties and issues need not be identical. ―Instead,

the courts examine whether the ultimate legal issues to be litigated will be determined in

the first-filed action, and thus, repeatedly have held that McWane requires only a showing

of ‗[s]ubstantial or functional identity.‘‖6 Similar issues are those that arise out of a

―common nucleus of operative facts.‖7 Likewise, parties are considered substantially the

same for purposes of McWane ―where related entities are involved but not named in both

actions,‖ such that the exclusion is ―‗more a matter of form than substance.‘‖8

Several Court of Chancery cases have granted a stay under McWane in a summary

proceeding.9 For summary proceedings, however, there need to be special circumstances

6 McQuaide v. McQuaide, 2005 WL 1288523, at *4 (Del. Ch. May 24, 2005) (quoting AT & T Corp. v. Prime Security Distribs., Inc., 1996 WL 633300, at *2 (Del. Ch. Oct. 24, 1996)); see also Chadwick v. Metro Corp., 856 A.2d 1066 (Table), 2004 WL 1874652, at *2 (Del. 2004) (―Under McWane and its progeny, a judge, in the exercise of his or her discretion, may stay or dismiss a later-filed suit where a first-filed suit is pending in a court capable of administering prompt and complete justice, and involves substantially similar parties and issues.‖); Transamerica Corp., 1995 WL 1312656, at *3. 7 Schnell v. Porta Sys. Corp., 1994 WL 148276, at *4 (Del. Ch. Apr. 12, 1994). 8 McQuaide, 2005 WL 1288523, at *4 (quoting FWM Corp. v. VKK Corp., 1992 WL 87327, at *1 (Del. Ch. Apr. 27, 1992)). 9 See, e.g., McElroy v. Schornstein, 2012 WL 2428343 (Del. Ch. June 20, 2012) (dismissing without prejudice on McWane grounds a corporate dissolution action); Xpress Mgmt., Inc. v. Hot Wings Int’l, Inc., 2007 WL 1660741 (Del. Ch. May 30, 2007) (granting stay under McWane in order to allow first-filed litigation in Canada to proceed in a dissolution case because the assets of the company were being determined in Canada and the Delaware litigation was just another effort by the plaintiff to try and seize control of the company); Johnston v. Caremark RX, Inc., 2000 WL 354381 (Del. Ch. Mar. 28, 2000) (granting stay of case seeking advancement under an unusual set of facts where the plaintiff first litigated in 7 warranting a stay.10 Overall, the Court ―must weigh ‗the need for swift and expeditious

resolution‘ of these summary proceedings ‗against the McWane policies of comity and

promoting the efficient administration of justice.‘‖11 The present dispute is a summary

proceeding for advancement under 8 Del. C. § 145. This context, therefore, warrants the

Court considering a fourth factor in its McWane analysis, namely: whether a balance of

the harms weighs in favor of staying the Delaware action.12

Alabama and had raised the advancement issue there); Carvel v. Andreas Hldgs. Corp., 698 A.2d 375 (Del. Ch. 1995) (granting stay of case under 8 Del. C. § 225 because the dispute over who owned the stock in issue was already before a probate court in New York). 10 See McElroy, 2012 WL 2428343, at *1 (―Summary statutory proceedings such as this one under [8 Del. C.] § 273 obviously require special attention when considering a motion to stay or dismiss under McWane. This court has often considered Delaware to be a more appropriate forum than a foreign court when a component of multi-forum litigation involves a summary proceeding under the [DGCL].‖); Xpress Mgmt., 2007 WL 1660741, at *5 (―It is an indisputable proposition that this State has a strong, and often paramount, interest in seeing such disputes [about a Delaware company‘s internal affairs] resolved in a rapid, orderly, and predictable manner. Due in large part to this pressing interest, a summary proceeding initiated in the Court of Chancery will often be allowed to proceed despite the pendency in a foreign court of a related prior-filed action between the same litigants.‖). 11 McElroy, 2012 WL 2428343, at *1 (quoting Choice Hotels Int’l, Inc. v. Columbus- Hunt Park Dr. BNK Investors, LLC, 2009 WL 3335332, at *4 (Del. Ch. Oct. 15, 2009)). 12 Choice Hotels Int’l, 2009 WL 3335332, at *10-11.

8 B. Analysis

I address the McWane factors in turn. For the reasons stated below, I find that

Nipro has not shown that this case should be stayed or dismissed in favor of the 2014

Florida Action II.

1. Is the 2014 Florida Action II first-filed?

Nipro filed the 2014 Florida Action II about a month after Holley filed this action

in Delaware. Normally, such a time differential conclusively would prevent the 2014

Florida Action II from being considered the first-filed, or even a simultaneously filed,

complaint. Nipro emphasizes, however, that the complaints in the 2014 Florida Action I

and the 2014 Florida Action II are practically identical. Therefore, it argues, the filing

date of the latter should relate back to that of the former, making Nipro‘s case the first-

filed action by nearly a month relative to Holley‘s initial Delaware complaint.

There is at least some support in Delaware case law for Nipro‘s position.

―[W]here an otherwise first-filed case has been amended or altered, Delaware courts will

‗compare[] the substance of the original case to that of the case as later composed,‘‖ and

―where the ‗substance of the original case remains unchanged,‘ the court will treat the

modified action as if filed on the original date.‖13 The two 2014 Florida complaints

essentially are identical. An argument can be made, however, that Nipro should not be

allowed to claim the mantle of first-filer here because it failed on two previous occasions

13 Choice Hotels Int’l, 2009 WL 3335332, at *6 (quoting McQuaide, Inc., 2005 WL 1288523, at *4).

9 to comply with the Florida Court‘s procedural rules for bringing a case. Nevertheless, I

need not determine that issue in this case, because even if I assume that the 2014 Florida

Action II qualifies as a first-filed action, Nipro cannot satisfy the other elements of the

McWane standard.

2. Do both actions involve the same parties and issues?

It is undisputed that this litigation and the 2014 Florida Action II involve the same

parties. Nipro also contends that the issues in this case and the 2014 Florida Action II

arise from a common nucleus of operative fact. Yet, a common underlying factual core,

on its own, is not always enough. The issues in the two cases still must be ―functionally

similar,‖ and that question deserves even ―closer inspection‖ when one of the competing

actions is a summary proceeding.14

In the 2014 Florida Action II, Nipro in essence asserts claims related to Holley‘s

right to indemnification in the ongoing SEC Action. Indeed, that action seeks to recoup

the legal fees of Holley previously advanced by Nipro. By contrast, in this action, Holley

asserts a right to advancement in the SEC Action. In addition, Holley here asserts a

number of additional claims that are not at issue in the 2014 Florida Action II, including a

claim for advancement in connection with that action, and claims for indemnification of

certain fees and expenses he incurred in litigating the Criminal Action, the 2012 Florida

Action, and the 2014 Florida Action I.

14 See id. at *7.

10 As my ruling on Holley‘s summary judgment motion demonstrates infra,

advancement and indemnification are distinct from one another. One difference is that,

unlike advancement actions, which are usually expedited, indemnification claims usually

do not receive expedited treatment. Consistent with that distinction, I have focused my

attention on the pending motions on Holley‘s advancement claims. His requests for

indemnification in this action can be taken up at a later time, if necessary. Thus, I do not

consider the advancement issues currently before me in this case to be functionally

similar to the issues in the 2014 Florida Action II.

3. Can Holley obtain prompt and complete justice in the Florida Court?

I have no doubt that the Florida Court could render prompt and complete justice as

to any claims properly before it. The procedural history of this case, however, casts

doubt on whether Holley could obtain prompt and complete justice as to his advancement

claims before the Florida Court. For starters, despite Nipro‘s debatable assertion that

Holley‘s request for advancement is a compulsory counterclaim under the Federal Rules

of Civil Procedure, it is clear that Holley‘s advancement claims were not before the

Florida Court as of the Argument in this action.15 Whether Holley‘s claims would be

compulsory counterclaims before the Florida Court depends on what claims of Nipro, if

any, are properly before that court.

Although Nipro has attempted to assert certain claims in the Florida Court for over

two years, it appears to have made a number of procedural mistakes in doing so. As a

15 Arg. Tr. 12.

11 result, Nipro‘s ability to move forward any claims in the 2014 Florida Action II is open to

question. In that regard, I note that, having dismissed Nipro‘s complaints in the 2012

Florida Action and the 2014 Florida Action I, it is unclear how the Florida Court will

respond to Nipro‘s latest attempt to pursue its claims there. For example, Holley has

advanced a colorable argument that the 2014 Florida Action II might be dismissed on

ripeness grounds because the SEC Action remains ongoing, which arguably makes

Nipro‘s claims for repayment premature. In sum, Nipro has made a weak showing, at

best, that the litigation it is attempting to prosecute before the Florida Court is likely to

enable Holley to obtain prompt and complete adjudication of his advancement claims.

4. Does the balance of harms favor staying this action?

As previously discussed, the summary nature of a challenged proceeding does not

preclude a movant from prevailing on a McWane argument. This Court has held,

however, that ―in all but the most exceptional circumstances, claims under Section 145(k)

for advancement of expenses should not be stayed or dismissed in favor of the prior

pending foreign litigation that give rise to them.‖16 The 2014 Florida Action II gives rise

to a portion of Holley‘s advancement claims. More broadly, this Court‘s opinion in Fuisz

v. Biovail Technologies suggests that a defendant must present to the Court a particularly

compelling explanation as to why an advancement case ought to be stayed under the

McWane doctrine. Nipro has not presented such an explanation here.

16 Fuisz v. Biovail Techs., Ltd., 2000 WL 1277369, at *1 (Del. Ch. Sept. 6, 2000).

12 The advancement claims are raised only tangentially in the 2014 Florida Action II.

That is, the only reason Nipro puts forward to negate advancement for Holley is that no

indemnification is possible in Holley‘s situation and, accordingly, under Nipro‘s

reasoning, advancement similarly is precluded. A major part of that argument relies on

Nipro‘s interpretation of Section 4(a) of the Indemnity Agreement. For the reasons

discussed in Section III.2 infra, regarding Holley‘s motion for partial summary judgment,

I reject that aspect of Nipro‘s position on the merits. Therefore, Holley‘s right to the

summary adjudication of his advancement claims in this action outweighs Nipro‘s desire

to avoid having to litigate outside of Florida.

In sum, Nipro failed to meet its burden of showing that the McWane factors

support staying or dismissing this case. At best, only one of the four McWane factors

weighs in Nipro‘s favor. Accordingly, I exercise my discretion to deny Nipro‘s motion to

dismiss or stay.

III. MOTION FOR PARTIAL SUMMARY JUDGMENT

Holley seeks partial summary judgment on his requests for advancement of legal

fees and expenses incurred in the SEC Action and the 2014 Florida Action II as well as

his fees and expenses related to pursuing those requests in this action—i.e., his fees on

fees. Holley‘s motion is not directed to the indemnification disputes between the parties;

therefore, those claims will be the subject of future proceedings.

―Summary judgment is granted if the pleadings, depositions, answers to

interrogatories and admissions on file, together with the affidavits, show that there is no

13 genuine issue as to any material fact and that the moving party is entitled to a judgment

as a matter of law.‖17 When considering a motion for summary judgment, the evidence

and the inferences drawn from the evidence are to be viewed in the light most favorable

to the nonmoving party.18 Summary judgment will be denied when the legal question

presented needs to be assessed in the ―more highly textured factual setting of a trial.‖19

The Court ―maintains the discretion to deny summary judgment if it decides that a more

thorough development of the record would clarify the law or its application.‖ 20

―Advancement cases are particularly appropriate for resolution on a paper record, as they

principally involve the question of whether claims pled in a complaint against a party . . .

trigger a right to advancement under the terms of a corporate instrument.‖21

B. Analysis

Delaware law permits, and in some cases requires, corporations to indemnify their

directors and officers for legal fees incurred in defending certain actions.22 Advancement

17 Twin Bridges Ltd. P’ship v. Draper, 2007 WL 2744609, at *8 (Del. Ch. Sept. 14, 2007) (citing Ct. Ch. R. 56(c)). 18 Judah v. Del. Trust Co., 378 A.2d 624, 632 (Del. 1977). 19 Schick Inc. v. Amalgamated Clothing & Textile Workers Union, 533 A.2d 1235, 1239 n.3 (Del. Ch. 1987) (citing Kennedy v. Silas Mason Co., 334 U.S. 249, 257 (1948)). 20 Tunnell v. Stokley, 2006 WL 452780, at *2 (Del. Ch. Feb. 15, 2006) (quoting Cooke v. Oolie, 2000 WL 710199, at *11 (Del. Ch. May 24, 2000)). 21 DeLucca v. KKAT Mgmt., L.L.C., 2006 WL 224058, at *6 (Del. Ch. Jan. 23, 2006). 22 8 Del. C. § 145(a)-(c).

14 is purely permissive; no Delaware corporation is required to advance any legal fees.23

Many corporations, however, provide for mandatory advancement as an enticement to

attract qualified individuals to serve as directors and officers. Holley‘s rights to

advancement derive from an Indemnity Agreement and HDI‘s Certificate of

Incorporation.24 The Certificate of Incorporation states, in relevant part:

[T]he Corporation shall indemnify, to the fullest extent permitted under the General Corporation Law of the State of Delaware, any person who was, is or is threatened to be made a party to a proceeding by reason of the fact he or she . . . was a director or officer of the corporation at any time prior to the date of the filing of this certificate of incorporation . . . . Such right shall include the right to be paid by the corporation expenses (including attorneys‘ fees) incurred in defending any such proceeding in advance of its final disposition to the maximum extent permitted under the General Corporation Law of the State of Delaware.25

The Indemnity Agreement includes a provision stating that the Company will,

subject to certain limits discussed infra, indemnify Holley:

against any and all costs and expenses . . . witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that [Holley] becomes legally

23 8 Del. C. § 145(e) (―Expenses (including attorneys‘ fees) incurred by an officer or director of the corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding . . . .‖) (emphasis added). 24 The Amended and Restated Certificate of Incorporation of Home Diagnostics, Inc. and the Indemnity Agreement were attached as Exhibits A and B, respectively, to Holley‘s initial Verified Complaint (hereinafter ―Certificate of Incorporation‖ and ―Indemnity Agreement‖). 25 Certificate of Incorporation Art. 8.

15 obligated to pay because of any claim or claims made against him in connection with any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative . . . to which [Holley] was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that [Holley] is, was or at any time becomes a director, officer, employee or other agent of the corporation . . . .‖26

The Indemnity Agreement later provides that: ―The Corporation shall advance, prior to

the final disposition of any action, suit or proceeding . . . all costs and expenses . . .

incurred by [Holley] in connection with such action, suit or proceeding,‖ conditioned

only ―upon receipt of an undertaking by or on behalf of [Holley] to repay said amounts if

it shall be determined ultimately that [Holley] is not entitled to be indemnified . . . .‖27

Both the Certificate of Incorporation and the Indemnity Agreement thus provide for

broad mandatory advancement rights.

Nipro advances three main arguments against Holley‘s advancement requests.

First, Nipro contends that Holley was not made a party to the SEC Action ―by reason of

the fact‖ he was an officer or director of HDI. At the very least, Nipro maintains, this is a

factual question precluding summary judgment. Second, Nipro argues that the Indemnity

Agreement between the parties precludes any indemnification for claims of insider

trading. Based on that premise, Nipro avers that it would be impossible for Holley to be

indemnified for the claims for which he seeks advancement in this action and, therefore,

26 Indemnity Agreement § 3(a). 27 Id. § 8.

16 that he is not entitled to advancement for those claims either. Third, Nipro maintains that

Holley‘s undertaking in relation to the SEC Investigation did not carry forward into the

SEC Action. Nipro also contends that any attempt by Holley now to provide the

undertaking required for advancement as to the SEC Action would be barred by laches. I

address these arguments in turn. Sections III.1–III.4 infra concern the SEC Action, to

which Nipro devoted the vast majority of its briefing. Section III.5 resolves the

advancement request for the 2014 Florida Action II.

1. Was Holley made a party to the SEC Action “by reason of the fact” that he was an officer or director of HDI?

In accordance with 8 Del C. § 145, both the Indemnity Agreement and the

Company‘s Certificate of Incorporation limit advancement to those cases where Holley

was made a party to a lawsuit ―by reason of the fact‖ that he is or was a director or officer

of the Company.28 Nipro contends that Holley cannot meet that requirement and

therefore is not entitled to advancement.

At the outset, Nipro argues that whether Holley was made a party to the SEC

Action ―by reason of the fact‖ he was a director is a factual issue that precludes summary

judgment. I disagree. Advancement is a summary proceeding focused on determining

whether the claims asserted against an officer or director fall within the category of

claims that the corporation agreed to advance. Accordingly, in this case, the ―by reason

28 Certificate of Incorporation Art. 8; Indemnity Agreement § 3.

17 of the fact‖ analysis requires looking to the allegations in the SEC‘s complaint.29 In that

regard, I note that courts often can determine whether the ―by the reason of the fact‖

requirement has been satisfied solely by examining the pleadings in the underlying

litigation, notwithstanding opposition from the defendant company. 30 From this

perspective, Nipro‘s argument that Holley‘s situation is no different than that of a janitor

who could have overheard inside information about the merger and then committed

securities law violations is unpersuasive. The SEC Complaint undeniably focuses on

Holley‘s position as chairman, including the breadth and depth of inside information to

which he had access as a result of his position.31 The allegations in the SEC Complaint,

29 A copy of the complaint in the SEC Action is attached as Exhibit D to Holley‘s initial Verified Complaint (hereinafter ―SEC Complaint‖). 30 See, e.g., Homestore, Inc. v. Tafeen, 888 A.3d 204, 214 (Del. 2005) (―The limited and narrow focus of an advancement proceeding precludes litigation of the merits of entitlement to indemnification for defending one self in the underlying proceedings. If it is subsequently determined that a corporate official is not entitled to indemnification, he or she will have to repay the funds advanced.‖); Brown v. LiveOps, Inc., 903 A.2d 324, 330 (Del. Ch. 2006) (―[I]t is apparent from the face of the complaint . . . that the claims asserted against [plaintiff] arise ‗by reason of the fact‘ that he was a director or officer of [the company].‖). 31 E.g., SEC Compl. ¶ 1 (―Although Holley owed a fiduciary duty to HDI and its shareholders to maintain the confidence of the insider information, he nevertheless provided the information to others with the intent that they purchase HDI stock on the basis of his tips.‖); id. ¶¶ 15-23 (describing Holley‘s access to the relevant information as coming from his position as chairman and participation in numerous high-level board meetings and negotiations regarding the HDI-Nipro merger); id. ¶ 23 (―Holley knew, or was reckless in not knowing, that as Chairman of the Board of Directors of HDI, he had a fiduciary duty to maintain the confidentiality of all material, nonpublic information that he received relating to HDI.‖); id. ¶¶ 27, 31, 40, 42, 44, 47, 53 (alleging that Holley breached his 18 therefore, strongly support the conclusion that the ―by reason of the fact‖ requirement is

satisfied in this case.

Nipro further contends that Holley committed the wrongs for which he was

accused in a personal capacity, not in a corporate capacity, making his official corporate

title beside the point. For a lawsuit to be brought ―by reason of the fact‖ that the

defendant was an officer or director, there must be ―a nexus or causal connection between

any of the underlying proceedings . . . and one‘s corporate capacity.‖32 Citing this

Court‘s decision in Paolino v. Mace Security International, Inc., Nipro asserts that the

―by reason of the fact‖ element requires some use of corporate power to engage in the

alleged wrongs.33 According to Nipro, the wrongs Holley committed did not involve any

such use of corporate power.

Admittedly, certain suits between a corporation and its directors or officers do

involve solely personal, and not corporate, obligations, such that the ―by reason of the

fact‖ requirement is not satisfied.34 This category of cases, however, is not as broad as

fiduciary duties by providing material, nonpublic information to others with the intent that they trade on that confidential information). 32 Homestore, 888 A.3d at 214. 33 Paolino v. Mace Sec. Int’l, Inc., 985 A.2d 392, 403 (Del. Ch. 2009) (―Section 145 will not apply when the parties are litigating a specific and personal contractual obligation that does not involve the exercise of judgment, discretion, or decision- making authority on behalf of the corporation.‖). 34 See Cochran v. Stifel Fin. Corp., 2000 WL 1847676, at *6 (Del. Ch. Dec. 13, 2000) (denying portion of indemnification claim for fees incurred in arbitration in 19 Nipro suggests.35 In advancement cases, the line between being sued in one‘s personal

capacity and one‘s corporate capacity generally is drawn in favor of advancement with

disputes as to the ultimate entitlement to retain the advanced funds being resolved later at

the indemnification stage.

As to the corporate capacity nexus, the ―requisite connection is established ‗if the

corporate powers were used or necessary for the commission of the alleged

misconduct.‘‖36 Notwithstanding Nipro‘s assertion that no ―corporate power‖ was

necessary for Holley to commit the insider trading violations of which he has been

accused, the relevant case law indicates otherwise. ―This Court has held previously that

where the claims asserted against a defendant in an action are based on the misuse of

confidential information that the defendant learned in his or her official corporate

capacity, that action qualifies as being asserted ‗by reason of‘ that corporate capacity.‖37

which employee was ordered to return excessive compensation amounts and repay a loan to the company), aff’d in part, rev’d in part, 809 A.2d 555 (Del. 2002). 35 Indeed, the Court in Paolino explicitly observed that defendant corporations were misreading cases like Cochran in an often unproductive effort to avoid paying the mandatory advancement and indemnification to which they previously agreed. Paolino, 985 A.2d at 404-07. 36 Id. at 406 (quoting Bernstein v. TractManager, Inc., 953 A.2d 1003, 1011 (Del. Ch. 2007)). 37 Pontone v. Milso Indus. Corp., 100 A.3d 1023, 1052 (Del. Ch. 2014); see also Brown, 903 A.2d at 330 (―The gravamen of the underlying complaint is that [the plaintiff] had access to proprietary information by reason of the fact that he was a director and officer of [the company] and that he wrongly used that information for his personal benefit.‖); Scharf v. Edgcomb Corp., 2004 WL 718923, at *4 (Del. Ch. Mar. 24) (―An essential component to [the plaintiff‘s] potential insider 20 Recognizing that these cases generally favor granting Holley advancement, Nipro

attempts to distinguish them by arguing that the facts of this case essentially are sui

generis. Nipro points out, for example, that Holley personally derived no monetary

benefit from the alleged insider trading here. Instead, he communicated the inside

information to some of his family and friends. Even if that is true, however, Holley

obtained a personal benefit in terms of the gratification he received as a result of his

allegedly illegal beneficence. But, Nipro‘s principal counterargument is that the

Indemnity Agreement prohibits indemnification relating to violations of the federal

securities laws, or even claims of such violations, and that Holley has pled guilty to

insider trading. Those arguments are addressed in the next subsection. Otherwise, based

on the allegations in the SEC Complaint and the consistent position of Delaware case law

on this issue, I conclude that Holley is a party to the SEC Action ―by reason of the fact‖

that he served as a director of HDI.

trading liability was his access to [the company‘s] nonpublic information, and he acquired that information ‗by reason of the fact‘ that he was a corporate officer and director.‖), rev’d on other grounds, 864 A.2d 909 (Del. 2004); Perconti v. Thornton Oil Corp., 2002 WL 982419, at *7 (Del. Ch. May 3, 2002) (―The inquiry, in these circumstances, is into whether the criminal scheme is alleged to have employed the corporate powers (or, for example, confidential inside information acquired through corporate status) conferred upon the officer by virtue of his status.‖). The same reasoning held true in the bygone era when the Superior Court adjudicated corporate indemnification cases. Merritt-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138, 142 (Del. Super. 1974) (―The charge [under Rule 10b-5] was based upon failure to disclose inside information. [The plaintiff] participated in the plan, shared the inside information, and was prosecuted because of his employment or agency relationship with [the company].‖).

21 2. Does the Indemnity Agreement preclude indemnification and, therefore, advancement for the claims asserted in the SEC Action?

Nipro‘s primary argument is that there can be no advancement where

indemnification is impossible. Citing Paolino, among other cases, Nipro contends that

advancement is only permissible in cases ―in which indemnification theoretically could

be available.‖38 The Delaware Supreme Court, however, has held that indemnification

and advancement ―are separate and distinct legal actions‖ and that the ―right to

advancement is not dependent on the right to indemnification.‖39 Indeed, Nipro‘s

position that advancement necessarily is limited to situations that could qualify for

indemnification appears to be wrong as a matter of law.40 Even assuming Nipro‘s

premise is correct, however, the Company still would be required to advance Holley‘s

fees in the SEC Action.

Nipro focuses on a carve out in the Indemnification Agreement (the ―Carve Out‖),

which provides that:

No indemnity pursuant to Section 2 or 3 hereof shall be paid by the Corporation . . . on account of any claim against [Holley] for an accounting of profits made from the purchase or sale by [Holley] of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto (the ―Exchange Act‖),

38 Paolino, 985 A.2d at 398. 39 Homestore, 888 A.2d at 212. 40 Id. at 212-13 (―Section 145(e), however, expressly contemplates that corporations may confer a right to advancement that is greater than the right to indemnification and recognizes that advances must be repaid if it is ultimately determined that the corporate official is not entitled to be indemnified.‖).

22 or any violation of any federal, state, or foreign statutory laws or regulations prescribing [sic] insider trading or similar provisions of any federal, state, local or foreign law.41

Nipro raises two distinct arguments pertaining to the Carve Out. First, Nipro reads the

Carve Out broadly to preclude indemnification as to any claims against Holley for a

violation of the insider trading laws. Holley disputes that interpretation. And second,

according to Nipro, because Holley pled guilty to insider trading, he has committed a

proscribed act under the terms of the Carve Out, even as construed by Holley, and is not

entitled to indemnification. Nipro further argues that because Holley cannot qualify for

indemnification, the Company has no current obligation to advance him any fees.

a. The proper construction of the Carve Out

Nipro‘s arguments suffer from several shortcomings. First and foremost, Nipro‘s

textual position is flawed. Nipro interprets the Carve Out as precluding indemnification

―on account of any claim against [Holley] for . . . any violation of‖ insider trading laws,

whether or not he committed the alleged wrong. Holley advances a different construction

of this provision. In terms of what is relevant to this case, Holley construes the Carve

Out as precluding indemnification for costs and expenses incurred ―on account of . . . any

violation of‖ insider trading laws. Under Holley‘s view, Section 4(a) of the Indemnity

Agreement prohibits indemnification in two separate situations: (1) an accounting action

under Section 16(b) of the Exchange Act; and (2) violations of insider trading laws.

41 Indemnity Agreement § 4(a).

23 Because Holley has moved for summary judgment and the parties disagree as to

the meaning of the Indemnity Agreement, I first must decide whether Section 4(a) is

ambiguous. If it is, this dispute probably cannot be decided on summary judgment. 42

Just because the parties to a contract interpret a particular provision differently does not

mean necessarily that the provision is ambiguous. ―Ambiguity exists ‗when the

provisions in controversy are reasonably or fairly susceptible of different interpretations

or may have two or more different meanings.‘ Ambiguity does not exist, however,

simply because the parties disagree about what the contract means.‖43 Thus, I must

examine each party‘s proposed interpretation of Section 4(a) to determine whether it is

reasonable.

Holley convincingly argues that Nipro‘s interpretation would result in an

indemnification provision that is contrary to the Delaware General Corporation Law

(―DGCL‖). Under the DGCL, indemnification of officers and directors of a corporation

is mandatory to the extent that the officer or director is successful. Specifically, Section

145(c) states:

To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be

42 2009 Caiola Family Trust v. Dunes Point West Assocs., LLC, 2014 WL 1813174, at *7 (Del. Ch. Apr. 30, 2014). 43 Id. (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992)).

24 indemnified against expenses (including attorneys‘ fees) actually and reasonably incurred by such person in connection therewith.44

Under Nipro‘s interpretation of the Indemnity Agreement, the Company could not

indemnify any claim, however meritless, of insider trading. Thus, if the government filed

a patently frivolous lawsuit against Holley and Holley prevailed in having the case

dismissed, the Company would have no obligation to indemnify him, despite his success.

Under this scenario, Section 4(a) would violate 8 Del. C. § 145(c). Indeed, such an

interpretation of Section 4(a) would render it void and, therefore, would be unreasonable

as a matter of law.45 Accordingly, I find that the Carve Out is not ambiguous and

interpret its final clause to preclude indemnification only for violations of insider trading

laws.46

This position is bolstered by the other provisions of the Indemnity Agreement.

Aside from the Carve Out, the Indemnity Agreement provides indemnity ―to the fullest

extent as may be provided to [Holley] by the Corporation under Delaware Law, the

44 8 Del. C. § 145(c) (emphasis added). 45 Paolino, 985 A.2d at 403 (―A bylaw provision that conflicts with a mandatory provision of the General Corporation law . . . is ultra vires and void . . . . I will not read the carve-out in a way that would render it invalid.‖). 46 This interpretation comports with Nipro‘s own conduct. Nipro initially advanced Holley‘s fees in connection with the SEC Investigation. The 2014 Florida Action II seeks repayment of those fees on the grounds that Holley was not entitled to them because he pled guilty to insider trading. But, if the Indemnity Agreement prevents Nipro from advancing fees in any situation where insider trading is even claimed, as Nipro now suggests, one would have expected Nipro to have refused to advance Holley the fees for the SEC Investigation in the first place.

25 Certificate [of Incorporation] and the Bylaws.‖47 Such provisions are relatively

common.48 In my view, only Holley‘s proposed construction of the Carve Out comports

with the Indemnity Agreement‘s explicit instruction for making advancement and

indemnification available to the fullest extent allowed by Delaware law.

In sum, I find Nipro‘s interpretation of the Carve Out to be unreasonable. Thus,

the only reasonable interpretation of the Indemnity Agreement presented by the parties

that conforms to the language of the Carve Out is that it prohibits indemnification for

actual insider trading violations, but not for all claimed or alleged insider trading

violations.49 Adopting that construction of the Indemnity Agreement, I still must

47 Indemnity Agreement § 3(b). 48 E.g., Brown, 903 A.2d at 328 (quoting a nearly identical provision and interpreting it to ―provide for mandatory advancement to the broadest extent possible under Delaware law‖). 49 Indeed, a reasonable argument can be made that the Indemnity Agreement requires advancement without consideration of the Carve Out. The advancement clause contains no restrictions and requires the Company to advance ―all costs and expenses . . . incurred by [Holley] in connection with such action, suit or proceeding.‖ Indemnity Agreement § 8. As noted, advancement and indemnification are distinct under Delaware law and it would not be inconceivable for the Indemnity Agreement to provide broader advancement rights than indemnification rights. If the Carve Out affects the Company‘s advancement obligation at all, then, textually, it only could be by modifying the phrase ―such action, suit or proceeding.‖ None of those terms, however, appear in the Carve Out. Instead, that phrase appears to be referencing Section 3 of the Indemnity Agreement, which provides for extending indemnification rights as broadly as allowed under Delaware law. Id. § 3; see also id. § 6 (― . . . in connection with any action, suit or proceeding referred to in Section 2 or 3 hereof . . . .‖) (emphasis added). The language ―action, suit or proceeding‖ originally derives from the DGCL: ―A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed 26 consider the effect, if any, of Holley‘s guilty plea on his claim for advancement for the

SEC Action and for the other matters before me.

b. The effect of Holley’s guilty plea on his claims for advancement

Nipro views Holley‘s guilty plea in the Criminal Action as conclusive on the

question of whether he may be entitled to indemnification in the SEC Action. Under the

interpretation of the Indemnity Agreement I adopted above, however, it is not a foregone

conclusion that Holley will need to repay any funds advanced in the SEC Action.

Despite his guilty plea, there are many ways in which Holley could be ―successful on the

merits or otherwise.‖50 I focus first on the language ―or otherwise.‖ As used in reference

to litigation, the term ―successful‖ bears no necessary connection to the term ―not guilty.‖

The SEC could terminate the SEC Action, for example, for any number of reasons,

including a reprioritization of limited resources. Similarly, Holley could prevail on

procedural grounds. Thus, I find that Holley could otherwise ―succeed‖ in the SEC

Action, within the meaning of Section 145(c), despite his guilty plea.51

action, suit or proceeding, whether civil, criminal, administrative or investigative . . . .‖ 8 Del. C. § 145(a) (emphasis added). For purposes of the pending motion, however, I need not decide that issue. Rather, I assume arguendo that the Carve Out is relevant to construction of the Indemnity Agreement‘s advancement provision, and I have construed it as Holley proposes. 50 8 Del. C. § 145(c). 51 See Perconti, 2002 WL 982419, at *7-8 (describing situation where plaintiff prevailed under 8 Del. C. § 145(c) when the United States Attorney dismissed all charges following a mistrial caused by a hung jury, despite the fact the plaintiff‘s co-executive pled guilty to all charges); Merrit-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138, 141 (Del. Super. 1974) (awarding partial indemnification 27 Additionally, Holley need not be completely successful; the Indemnity Agreement

permits partial indemnification.52 The guilty plea only covered two instances of insider

trading involving up to three individuals.53 The SEC Action, however, involves six

tippees, at least three of whom were not covered by the guilty pleas. 54 Holley, therefore,

conceivably could succeed on the merits as to those aspects of the SEC Action.

Based on the foregoing, I conclude that it is possible that Holley eventually could

receive indemnification in the SEC Action. Thus, even assuming that Nipro‘s

advancement obligations are limited to theoretically indemnifiable situations, the

Indemnification Agreement requires Nipro to advance Holley‘s fees. Any fees or

expenses later found to have been advanced for matters as to which Holley is not entitled

to indemnification can be recouped at the indemnification stage.

3. Did Holley provide Nipro with a sufficient undertaking to repay any advancement to which he was not entitled?

Nipro unconvincingly argues that Holley cannot receive advancement in the SEC

Action because his undertaking was insufficient. It is undisputed that Holley submitted

an undertaking in connection with the SEC Investigation. Nipro reads that undertaking,

after plaintiffs were convicted by jury on the second retrial on some, but not all, counts alleging an insider trading scheme). 52 Indemnity Agreement § 6. 53 Compl. ¶¶ 27, 32-33. 54 SEC Complaint ¶¶ 40-51.

28 however, as covering only the SEC Investigation and not the subsequent SEC Action. I

reject this argument as illogical and contrary to precedent.

Our case law has recognized that complex litigation contains many related stages.

In Sun-Times Media Group, Inc. v. Black,55 then-Vice Chancellor, now-Chief Justice

Strine determined the meaning of the phrase ―the final disposition of such action, suit or

proceeding‖ in Section 145(e) of the DGCL. A virtually identical phrase appears in the

Indemnity Agreement‘s advancement clause.56 The corporation in Sun-Times contended

that its advancement obligations terminated after a jury verdict was returned in a criminal

trial; the former officers argued that the corporation owed them advancement through a

final appeal. Noting the parallel language in Section 145(e) and the corporation‘s

indemnification bylaw, as well as a bylaw stating that advancement would be available to

the ―fullest extent permitted by applicable law,‖ the Court determined that the dispute

between the parties was really about the scope of Section 145(e). Honing in on the term

―final disposition,‖ the Court analyzed relevant precedent, Black‘s Law Dictionary, and

the policies underlying advancement. Against this backdrop, the Court concluded that

―an action, suit or proceeding refers to a discrete administrative or judicial matter

involving a particular subject and encompasses all its stages, and that the final disposition

55 954 A.2d 380 (Del. Ch. 2008). 56 Indemnity Agreement § 8 (― . . . the final disposition of any action, suit or proceeding . . . .‖).

29 of such an action, suit or proceeding occurs when its outcome is no longer subject to any

further review as of right.‖57

Nipro‘s position runs contrary to Sun-Times. The SEC Action is a continuation of

the SEC Investigation. Like most serious litigation efforts, an investigation of the

potential merits preceded the filing of the SEC Action. Nipro‘s averment that SEC

procedures differ so substantially from normal civil litigation that they warrant requiring

separate undertakings for the SEC Investigation and the SEC Action is unpersuasive.

Additionally, I note that adopting Nipro‘s position would produce uncertainty and

engender an increase in advancement litigation over when and how many undertakings an

officer or director must supply for the same overall proceeding. Based on the reasoning

of Sun-Times, which Nipro neglected to cite in the portion of its brief relevant to this

argument (but which it did cite elsewhere), I reject Nipro‘s challenge to the adequacy of

Holley‘s undertaking.

4. Does either laches or public policy preclude Holley from receiving advancement?

Nipro rather weakly asserts a laches argument, suggesting that Holley‘s demand

for advancement comes too late and that Nipro has been prejudiced by the delay. Besides

being insufficiently briefed and argued, the procedural history of Holley‘s litigation

odyssey provides a cogent explanation as to why Holley is just now seeking advancement

for the SEC Action which was originally filed January 13, 2011. Nipro did advance

57 Sun-Times, 954 A.2d at 396.

30 Holley‘s fees during the SEC Investigation until November 2010. Not long after the SEC

filed the complaint initiating the SEC Action in January 2011, that matter was stayed so

the Criminal Action could proceed. Holley‘s counsel represented at oral argument that

the SEC Action was in the earliest procedural phases and only recently had required the

expenditure of time and money.58 Accordingly, there was no need for Holley to seek

advancement for the SEC Action much before May 2014, when he filed this action,

because there was no need for Holley‘s attorneys to devote time to that case until

recently.59

Finally, Nipro argues that allowing Holley to obtain advancement in the

circumstances of this case would violate public policy. Nipro grounds its argument on

the DGCL‘s prohibition against indemnifying ―a party who did not act in good faith or in

the best interests of the corporation.‖60 Relying on Holley‘s guilty plea and the

accompanying plea colloquy, Nipro asserts that it has been established conclusively that

Holley acted willfully and not in the best interests of the Company. Nipro‘s exasperation

at the prospect of continuing to pay Holley‘s fees, given the facts of this case, is

understandable. Unfortunately for Nipro, however, its argument is inconsistent with the

rights granted to its directors under the DGCL.

58 Arg. Tr. 21-22 (counsel for Holley). 59 Holley‘s Complaint also seeks advancement as to the 2014 Florida Action II, but the timeliness of his Complaint cannot seriously be questioned in that regard. 60 8 Del. C. § 145(a).

31 The simple answer to Nipro‘s argument is that indemnification and advancement

are separate issues. If the SEC pursues its case against Holley and triumphs, then the

state-of-mind limitations of 8 Del. C. § 145(a) will come into play. But if Holley

succeeds, on the merits or otherwise, he will not have to repay the money initially

advanced. DGCL § 145(c) does not have a state-of-mind limitation. As demonstrated by

subsection (a) of Section 145, the Legislature knew how to add a requirement, when it so

intended, that the director or officer must have acted in the corporation‘s best interests.

The absence of such a requirement in subsection (c), therefore, can only be viewed as

deliberate. Requiring a ―corporate officer seeking indemnification under Section 145(c)

to demonstrate that he pursued his course of conduct for the benefit of the corporation . . .

would limit the rights clearly conferred by Section 145(c) in a manner that was not (but

could have been) included in the legislative standard.‖61

Finally, in terms of public policy, I note that this Memorandum Opinion concerns

only Holley‘s right to advancement. At the indemnification stage, he may be required to

repay Nipro some or all of the money advanced. As to the motion presently before me,

however, neither the DGCL nor any relevant precedent suggests that advancing Holley‘s

fees would violate the public policy of this State.

5. Is Holley entitled to advancement for the 2014 Florida Action II?

Holley also has moved for summary judgment on his claim for advancement as to

the 2014 Florida Action II. Nipro spent minimal time in its briefing contesting Holley‘s

61 Perconti, 2002 WL 982419, at *4.

32 right to advancement for that action. The 2014 Florida Action II stems from the

advancements of attorneys‘ fees Nipro made during the SEC Investigation. Nipro now

claims that Holley was not entitled to that money and wants it back. Holley denies

Nipro‘s claims. Based on the record before me, I find that the 2014 Florida Action II is

an advanceable proceeding. Holley is defending a suit brought to recover previously

advanced funds. Nipro advanced those funds to Holley in the first place because it

presumably concluded he had a right to them as HDI‘s chairman. Furthermore, Holley‘s

obligation to return those funds, if any, arises from the fact that, as HDI‘s chairman, he

was a party to the Indemnity Agreement.

Nipro‘s apparent defense to Holley‘s advancement claim in this regard is that, if I

adopt its broad interpretation of the Carve Out in Section 4 of the Indemnity Agreement,

then I also should find that Nipro‘s suit against Holley in the 2014 Florida Action II

relates to Holley‘s insider trading scheme and, therefore, does not qualify for

advancement. For the reasons discussed in Section III.B.2 supra, however, I rejected

Nipro‘s interpretation of the Indemnity Agreement. In addition, Holley executed a proper

undertaking for the 2014 Florida Action II. I find, therefore, that Holley‘s defense of that

proceeding is advanceable. Thus, I conclude that Holley also is entitled to advancement

for his reasonable fees and expenses incurred in defense of the 2014 Florida Action II.

IV. FEES ON FEES

Under the Indemnity Agreement, if the Company fails to pay a proper request for

advancement or indemnification, Holley can sue. That agreement further provides that

Holley, ―in such enforcement action, if successful in whole or in part, shall be entitled to

33 be paid also the expense of prosecuting his claim.‖62 Pursuant to DGCL § 145, however,

this Court ―will ‗only award that amount of fees that is reasonable in relation to the

results obtained.‘‖63 Here, that calculation is simple: Holley succeeded in defeating a

motion to dismiss or stay and succeeded in establishing on a motion for partial summary

judgment his right to advancement in the SEC Action and the 2014 Florida Action II.

These were the only subjects of this Memorandum Opinion. Accordingly, Holley

prevailed on every issue currently before the Court. Thus, Holley is entitled to 100% of

the reasonable ―fees on fees‖ he incurred in this advancement proceeding with respect to

his claims for advancement, including his opposition to Nipro‘s motion to dismiss or stay

this action.64

V. CONCLUSION

For the foregoing reasons, I hold as follows: (1) Nipro‘s motion to dismiss or stay

is denied; (2) Holley‘s motion for partial summary judgment on his advancement claims

as to the SEC Action and the 2014 Florida Action II is granted; and (3) Holley is entitled

to 100% of his fees on fees to date in pursuing his claims for advancement in this action.

IT IS SO ORDERED.

62 Indemnity Agreement § 9. 63 Pontone, 100 A.3d at 1058 (quoting Schoon v. Troy Corp., 948 A.2d 1157, 1176 (Del. Ch. 2008)). 64 This ruling, however, does not apply to, and is without prejudice to, Holley‘s claims in this action for indemnification.