Nicholas Day v. Diligence, Inc.

• Court: Court of Chancery of Delaware
• Decided: May 7, 2020
• Docket: CA No. 2020-0076-SG
• Status: Published

Opinion

COURT OF CHANCERY OF THE SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE VICE CHANCELLOR 34 THE CIRCLE GEORGETOWN, DELAWARE 19947

Date Submitted: April 16, 2020 Date Decided: May 7, 2020

Ashley R. Altschuler, Esq. Paul J. Lockwood, Esq. Ethan H. Townsend, Esq. Daniel S. Atlas, Esq. Harrison S. Carpenter, Esq. SKADDEN, ARPS, SLATE, MEAGHER & Aaron P. Sayers, Esq. FLOM LLP MCDERMOTT WILL & EMERY LLP One Rodney Square The Nemours Building P.O. Box 636 1007 North Orange Street, 4th Floor Wilmington, Delaware 19899 Wilmington, Delaware 19801

RE: Nicholas Day v. Diligence, Inc. C.A. No: 2020-0076-SG

Dear Counsel:

The entity Defendant—of which the Plaintiff is a director and former

officer—in this action for advancement of attorney’s fees has objected to the

Plaintiff’s first and second fee invoices. I held Oral Argument on the Defendant’s

objections on April 16, 2020, and reserved judgment on whether the Plaintiff is

entitled to fees incurred before submitting an undertaking to the Defendant, fees

otherwise advanceable here. The parties have joined on this issue, despite the fact

that the amount is not significant in light of the total advancement sought. The

Defendant has attempted to rely on a recent Transcript Ruling of this Court, Salomon v. Kroenke Sports & Entertainment, LLC,1 which it characterizes as supporting the

proposition that the Plaintiff may receive advancement only for those fees incurred

after an undertaking was provided, because prior to that date the advancement right

had not yet ripened.2

Transcript Rulings generally have no precedential value in this Court and they

should ordinarily not be relied on as precedent—at most they offer persuasive

authority. Rulings from the bench most often “reflect that the court intended to

decide a particular dispute,” not to advance the common law.3 They tend to be

informal, and often fail to be cabined in the way a jurist typically limits her rationale

in a written decision. They are made in light of the fact that they will have no

precedential value. This consideration is stronger where, as here, the transcript itself

reflects that the ruling was limited to the case sub judice.

For the forgoing reasons, I decline to rely on the Salomon transcript. More

fundamentally, the Defendant’s interpretation of Salomon—only permitting

advancement of expenses incurred after the submission of an undertaking—is not

persuasive as a matter of doctrine or the Delaware General Corporation Law

(“DGCL”). The Defendant’s proffered rule would require an individual entitled to

1 C.A. No. 2019-0858-JTL (Del. Ch. Feb. 26, 2020) (TRANSCRIPT). 2 Defendant Diligence Inc.’s Objections to Plaintiff’s First and Second Invoices, D.I. 11, ¶ 21 3 High River Ltd. P'ship v. Occidental Petroleum Corp., 2019 WL 6040285, at *7 n.77 (Del. Ch. Nov. 14, 2019). 2 advancement to submit an undertaking before engaging counsel in order to ensure

maximum eligibility for advancement, despite the fact that the fees incurred pre-

undertaking may be indemnifiable. Section 145(e) of the DGCL provides:

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 upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this section.4

This section permits a corporation to pay fees in advance of a final disposition of an

action where the eligible party has submitted an undertaking. It provides that the

advancement payment itself must await the undertaking. The very nature of an

undertaking is to permit advance payment of reimbursable fees, with the purpose of

ensuring that the entity has the legal (although not always practical) ability to recoup

amounts advanced if they ultimately prove not indemnifiable. Nothing in the

language of the statue, or the policy implicit therein, limits advancement to sums

incurred post-undertaking, to my mind. The Defendant, I note, has pointed to none.

Nor has it cited to precedent, other than the transcript mentioned above.

4 8 Del. C. § 145(e) (emphasis added). 3 Therefore, the Defendant’s objection to the Plaintiff’s fees is denied to the

extent such objection is based on the incurrence of such fees before the submission

of an undertaking.

To the extent the foregoing requires an order to take effect, it is SO

ORDERED.

Sincerely,

/s/ Sam Glasscock III

Sam Glasscock III