Vanguard Pai Lung, LLC v. Moody, 2020 NCBC 56.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 18 CVS 13891
VANGUARD PAI LUNG, LLC; and PAI LUNG MACHINERY MILL CO. LTD.,
Plaintiffs and Counterclaim Defendants,
v.
WILLIAM MOODY; NOREEN MOODY; MARY KATE MOODY; MICHAEL MOODY; NOVA ORDER AND OPINION ON WILLIAM TRADING USA, INC.; and NOVA MOODY’S MOTION FOR PARTIAL WINGATE HOLDINGS, LLC, JUDGMENT ON THE PLEADINGS Defendants,
and
WILLIAM MOODY; NOVA TRADING USA, INC.; and NOVA WINGATE HOLDINGS, LLC,
Counterclaim Plaintiffs.
1. William Moody served as president and CEO of Vanguard Pai Lung, LLC
(“Vanguard”) for nearly a decade. Claiming that Moody had siphoned money and
assets, the company fired him. Then it sued him, three members of his family, and
two entities that he owns. Moody denies the allegations. He has also demanded
advancement of his legal fees and expenses, citing the indemnification and
advancement rights given to Vanguard’s managers in its operating agreement.
Vanguard has refused.
2. This decision addresses a single issue: whether Moody is entitled to
judgment on the pleadings for his advancement counterclaim. As to liability, the answer is yes. The amount due for expenses incurred by Moody to date and the
manner in which Vanguard must pay his expenses going forward will require further
proceedings.
Womble Bond Dickson (US) LLP, by Matthew F. Tilley, Russ Ferguson, and Patrick G. Spaugh, and Perkins Coie LLP, by John P. Schnurer, Sean T. Prosser, John D. Esterhay, and Yun (Louise) Lu, for Plaintiffs Vanguard Pai Lung, LLC and Pai Lung Machinery Mill Co. LTD.
Johnston, Allison & Hord, P.A., by Patrick E. Kelly, Michael J. Hoefling, and David V. Brennan, for Defendants William Moody, Nova Trading USA, Inc., and Nova Wingate Holdings, LLC.
Burns, Gray & Gray, by John T. Burns, for Defendants Noreen Moody, Mary Kate Moody, and Michael Moody.
Conrad, Judge. I. BACKGROUND
3. Vanguard, a North Carolina limited liability company, makes and sells
high-speed circular knitting machines. When the company was formed in 2009,
Moody became president, CEO, and one of five managers. He is still a manager but
no longer an officer, having been fired in 2018 as a prelude to this suit.
4. Vanguard’s complaint describes a typical, if wide-ranging, case of abuse of
executive authority. If the complaint is to be believed, Moody “used his positions as
President, CEO, and manager . . . to misappropriate and embezzle funds and property
from [Vanguard], and to otherwise enrich himself, his family, [and] friends through
numerous self-dealing and illegal activities . . . .” (Compl. ¶ 23, ECF No. 3.) That
includes installing six of his children in high-ranking jobs, complete with costly perks
and inflated salaries. (See Compl. ¶¶ 62, 63, 68, 70, 74, 77, 81, 90, 170.) It also
includes allegations that he stole Vanguard’s tax refunds, ruined its relationships with clients and lenders, and cooked up a sweetheart deal to have it rent property
from one of his own companies. (See, e.g., Compl. ¶¶ 26, 29, 38, 39, 48, 52, 74–76.)
Vanguard presses sixteen claims in all—including fraud, conversion, embezzlement,
breach of fiduciary duty, and breach of contract.
5. Moody not only denies these allegations but contends, by counterclaim, that
Vanguard must pay for his legal defense. Vanguard’s operating agreement gives its
managers broad indemnification and advancement rights. The company must
indemnify “to the fullest extent now or hereafter permitted by law” any manager who
becomes a party to a civil action “by reason of the fact that such person is or was an
authorized representative of” the LLC. (Operating Agrmt. § 3.7(a), ECF No. 63.1.)
Likewise, it must pay the manager’s expenses, including attorney’s fees, “in advance
of the final disposition” so long as the manager provides an undertaking to repay
those sums if not entitled to indemnification when all is said and done. (Operating
Agrmt. § 3.7(b).) These rights endure even when Vanguard itself sues and accuses
the manager of bad acts. (See Operating Agrmt. § 3.7(f).) Moody demanded
advancement and provided the required undertaking, yet Vanguard refused. (See
Defs.’ Am. Countercl. Ex. A, ECF No. 59.)
6. The advancement counterclaim is one of twelve being pursued by Moody and
his fellow defendants. An earlier opinion describes them in detail. See Vanguard Pai
Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at *2–7, 25 (N.C. Super. Ct. June 19,
2019) (denying Vanguard’s motion to dismiss eight counterclaims, not including the
advancement counterclaim). The other counterclaims are relevant here because Moody believes the right to advancement extends to his affirmative claims for relief
as well as his defense of the claims against him. Vanguard has asserted affirmative
defenses, including unclean hands and Moody’s own alleged breach of the operating
agreement. (See Pls.’ Answer 15, ECF No. 77.)
7. Now that the pleadings are closed, Moody argues that his advancement
counterclaim is ripe for adjudication. He asks the Court to enter judgment on the
pleadings under Rule 12(c) of the North Carolina Rules of Civil Procedure. (See ECF
No. 78.) The Court decides the motion with the benefit of full briefing and argument
from counsel at a hearing in September 2019.
II. ANALYSIS
8. In some respects, this dispute presents questions of first impression. Our
appellate courts have not addressed advancement beyond a token mention or two.
See Russell M. Robinson, II, Robinson on North Carolina Corporation Law § 18.06
(7th ed. 2019) [“Robinson”]. The most thorough—perhaps the only—discussion of
North Carolina law on advancement appears in a recent decision of this Court and
draws heavily from Delaware’s deep body of law in the area. See generally Wheeler
v. Wheeler, 2018 NCBC LEXIS 156 (N.C. Super. Ct. Nov. 15, 2018). With so little
guidance, it is best to start with an explanation of what advancement is and what
purpose it serves.
9. In short, indemnification and advancement are tools used to allocate risk
between a corporation or LLC and its leaders. Corporate service can be risky. Deals
and decisions made in good faith sometimes go south and, when they do, could result in legal claims against corporate officials. A zealous legal defense isn’t cheap, so the
best and brightest might not gamble on corporate service knowing that they would
have to bear the cost of any lawsuit arising from that service.
10. Indemnification can alleviate that concern. It is the company’s promise to
reimburse an official—such as an officer, director, or manager—“for all out of pocket
expenses and losses caused by an underlying claim.” Id. at *26 (quoting Majkowski
v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 586 (Del. Ch. 2006)). Of course,
companies usually do not—and often by law cannot—indemnify officials for bad-faith
conduct. See, e.g., N.C.G.S. § 55-8-51(d). As a result, the right to indemnification
may not kick in until the official mounts a successful defense, demonstrating that she
acted in good faith. Anyone familiar with complex civil litigation knows that could
take a while. For officials who do not have the financial wherewithal to go the
distance, indemnification might look like an empty assurance.
11. Advancement provides the immediate relief that indemnification does not.
An agreement to advance expenses obligates the company to pay them during the
litigation—in other words, before the right to indemnification is established. See
Wheeler, 2018 NCBC LEXIS 156, at *27. The official, in turn, must agree to pay back
what she has received if it later turns out that she is not entitled to indemnification.
See id. This arrangement “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.” Homestore,
Inc. v. Tafeen, 888 A.2d 204, 211 (Del. 2005). 12. Long ago, the General Assembly gave North Carolina corporations the
power to advance litigation expenses to directors, all to further the public policy of
enabling corporations to attract talented leaders. See N.C.G.S. §§ 55-8-50, 55-8-53.
Although there is no analogous statute for LLCs, silence should not be mistaken for
disapproval. Members of LLCs have great leeway to arrange their affairs by contract.
See id. § 57D-10-01. Without question, “[a]dvances of expenses may . . . be addressed
in an operating agreement,” just as the members of Vanguard chose to do here.
Robinson § 34.04[4].
13. When it works as designed, advancement ensures that company officials
have the resources to resist unjustified lawsuits without relieving them of ultimate
responsibility for any bad-faith conduct. But for all its virtues, advancement is a
tinderbox for ancillary litigation. Few companies, having sued an official for bad
behavior, are willing to fund both sides of the lawsuit, even when they’ve contracted
to do so. That often prompts early and accelerated motions practice in which the
official seeks summary relief before reaching the merits of the underlying claims. See,
e.g., Radiancy, Inc. v. Azar, 2006 Del. Ch. LEXIS 13, at *1–4 (Del. Ch. Jan. 23, 2006).
14. This dispute is a good example. Vanguard, after accusing Moody of
pervasive disloyalty, has refused to advance his litigation expenses. Moody contends
that the Court need not look beyond the pleadings to decide the advancement dispute
in his favor. In this posture, the Court must take Vanguard’s allegations as true and
disregard Moody’s contrary allegations. See Ragsdale v. Kennedy, 286 N.C. 130, 137,
209 S.E.2d 494, 499 (1974). Moody can succeed only if the pleadings “clearly establish[] that no material issue of fact remains to be resolved and that he is entitled
to judgment as a matter of law.” Carpenter v. Carpenter, 189 N.C. App. 755, 761, 659
S.E.2d 762, 767 (2008).
A. “By Reason of the Fact”
15. The operating agreement confers a broad, mandatory right to advancement
on Vanguard’s managers, including Moody. Read together, sections 3.7(a) and (b) put
two conditions on advancement: that Moody must have been sued “by reason of the
fact” that he was an authorized representative of Vanguard; and that he must provide
an undertaking to repay advanced expenses if “ultimately determined” not to be
entitled to indemnification. (Operating Agrmt. §§ 3.7(a), (b).) Vanguard disputes the
first but not the second.
16. The phrase “by reason of the fact” commonly appears in corporate
advancement and indemnification provisions, including those at issue in Wheeler.
There, the Court found Delaware law “instructive” when interpreting its meaning.
Wheeler, 2018 NCBC LEXIS 156, at *34. Moody opposes looking to Delaware law,
claiming that it conflicts with North Carolina law. But the only North Carolina case
that Moody cites has nothing to do with advancement, comes from a context other
than corporate law, and deals with different contract language. See CSX Transp.,
Inc. v. City of Fayetteville, 247 N.C. App. 517, 525–27, 785 S.E.2d 760, 765–66 (2016).
There is no conflict, and Wheeler’s approach is sound. If the Court is wrong about
that, Moody will suffer no harm because he meets the “by reason of the fact”
requirement even as it has been interpreted by Delaware’s courts. 17. All that the phrase “by reason of the fact” requires is a “nexus” between the
underlying claim and the official’s corporate capacity. Wheeler, 2018 NCBC LEXIS
156, at *34 (quoting Homestore, 888 A.2d at 213). For close calls, “the line between
being sued in one’s personal capacity and one’s corporate capacity generally is drawn
in favor of advancement . . . .” Holley v. Nipro Diagnostics, Inc., 2014 Del. Ch. LEXIS
268, at *26 (Del. Ch. Dec. 23, 2014). It is enough to show that “the corporate powers
were used or necessary for the commission of the alleged misconduct,” Paolino v. Mace
Sec. Int’l, Inc., 985 A.2d 392, 406 (Del. Ch. 2009), or that “the claim depends on a
showing that the official breached duties, quintessentially fiduciary duties, he owed
to the corporation in that capacity,” Zaman v. Amedeo Holdings, Inc., 2008 Del. Ch.
LEXIS 60, at *55 (Del. Ch. May 23, 2008); see also NAMS Holdings, LLC v. Reece,
2018 NCBC LEXIS 32, at *8 (N.C. Super. Ct. Apr. 16, 2018).
18. In some cases, artful pleading might obscure the nature of the claims and
underlying conduct. Not so here. Vanguard’s complaint is blunt: it alleges that
Moody “used his positions” as manager and officer to favor his family and friends,
steal from the company, and hide his wrongdoing. (Compl. ¶¶ 23, 24; see also Compl.
¶¶ 27, 29, 37, 62.) By doing so, it claims, Moody breached his fiduciary duties. (See
Compl. ¶ 120.) The nexus is plain as day. See Wheeler, 2018 NCBC LEXIS 156, at
*36–37 (concluding that “alleged conduct as President” in “breach of officer’s and
director’s duties” met nexus requirement).
19. Vanguard barely mentions its claim for breach of fiduciary duty, apparently
recognizing that it is a lost cause. (See Opp’n 15, ECF No. 84.) Advocating “a claim- by-claim analysis,” it argues that the other claims lack the required nexus. (Opp’n
13.) It is certainly possible for some claims to meet the nexus requirement and others
not. If so, the right to advancement is limited to the qualifying claims. See, e.g.,
Weaver v. ZeniMax Media, Inc., 2004 Del. Ch. LEXIS 10, at *11–14 (Del. Ch. Jan. 30,
2014).
20. But when all the claims rest on the same factual allegations, as they do here,
there is no reason to treat one claim differently than any other. Vanguard concedes
that its claims for conversion, constructive fraud, embezzlement, unfair or deceptive
trade practices, unjust enrichment, claim and delivery, and civil conspiracy depend
on the same conduct that underlies its claim for breach of fiduciary duty. (See Opp’n
14–18.) The complaint makes clear that the other claims do too, (see Compl. ¶ 120),
and that Moody “used his positions” to accomplish all of the alleged misconduct,
(Compl. ¶¶ 23, 24). In other words, though different legal theories may be at play,
all sixteen claims are intertwined and involve “the charge that a senior managerial
employee failed to live up to his duties of loyalty and care to the” company. Reddy v.
Elec. Data Sys. Corp., 2002 Del. Ch. LEXIS 69, at *20 (Del. Ch. June 18, 2002), aff’d,
820 A.2d 371 (Del. 2003).
21. The Court therefore concludes that all claims against Moody arise “by
reason of the fact” that he was a manager and officer of Vanguard. See, e.g., Doran
Jones, Inc. v. Per Scholas, Inc., 2017 U.S. Dist. LEXIS 67828, at *21 (S.D.N.Y. May
2, 2017) (addressing claims together when based on “the same factual allegations”); see also Wheeler, 2018 NCBC LEXIS 156, at *36–37 (same); Zaman, 2008 Del. Ch.
LEXIS 60, at *104–05 (same).
22. As a result, Moody has met the requirements for advancement. He does not
have to show that he also has a right to indemnification, as Vanguard contends. (See
Opp’n 10–13.) Advancement “is not dependent on the right to indemnification”; it
serves the distinct purpose of providing immediate, interim relief. Homestore, 888
A.2d at 212; accord Wheeler, 2018 NCBC LEXIS 156, at *26. The operating
agreement drives home that difference by requiring an undertaking to repay
advanced expenses if indemnification is later denied. That requirement would be
superfluous if advancement depended on the manager’s right to indemnification.
23. It is undisputed that Moody provided the required undertaking. (See Defs.’
Am. Countercl. Ex. A.) And he is a party here “by reason of the fact” of his service to
Vanguard. He has therefore met all the requirements for advancement imposed by
the operating agreement.
B. Affirmative Defenses
24. Next, the Court addresses whether Moody forfeited his right to
advancement. Vanguard relies on the general rule of contract law “that if either party
to the contract commits a material breach of the contract, the other party should be
excused from the obligation to perform further.” Coleman v. Shirlen, 53 N.C. App.
573, 577–78, 281 S.E.2d 431, 434 (1981). According to Vanguard, Moody breached
the operating agreement as early as 2009, thus excusing it from having to advance
expenses. (See Opp’n 6–10.) And because this is a motion for judgment on the pleadings, Vanguard contends, the Court must accept its allegations of Moody’s
breach—and, thus, its affirmative defense—as true. (See Opp’n 6.)
25. This is not persuasive. Contracts vary in form and substance. Some
promises may be independent of other promises in the same contract. When they are,
the “[f]ailure to perform an independent promise does not excuse nonperformance on
the part of the other party.” Coleman, 53 N.C. App. at 578, 281 S.E.2d at 434.
Whether promises are dependent or independent turns on the language of the
contract, its nature, and the relationship between the parties. See Williams v. Habul,
219 N.C. App. 281, 294, 724 S.E.2d 104, 112–13 (2012).
26. Take, for example, forum selection clauses. The promise to sue in a given
forum ordinarily does not depend upon performance of the other contract terms.
Rather, by choosing a venue for resolving contract disputes, the parties implicitly
acknowledge that one or the other might not live up to its end of the bargain. It would
be nonsensical to say that the choice of forum becomes unenforceable when a breach
occurs. See, e.g., Monster Daddy, LLC v. Monster Cable Prods., Inc., 483 Fed. App’x
831, 835 (4th Cir. 2012) (unpublished) (concluding that forum selection clause was
independent and would be “meaningless” if prior breach could render it
unenforceable).
27. For similar reasons, Vanguard’s obligation to advance expenses to a
manager does not depend on faithful performance of the manager’s duties. The very
purpose of advancement is to allow the manager to defend against allegations of
misconduct, even those leveled by Vanguard. (See Operating Agrmt. § 3.7(f).) The obligation is mandatory (Vanguard “shall pay all expenses”) and due before a decision
on the underlying claims (“in advance of the final disposition of such action”).
(Operating Agrmt. § 3.7(b).) To say that the right to advancement depends on an
ultimate determination of the manager’s faithful performance, as Vanguard argues,
would eliminate the right altogether, upsetting the parties’ allocation of risk.
28. In a footnote, Vanguard points to its allegation that Moody covered up his
wrongdoing and argues that his advancement claim is therefore barred by his own
unclean hands. (See Opp’n 8 n.3.) This argument is equally unpersuasive. The
doctrine of unclean hands bars recovery only when the wrongful conduct relates to
the requested relief. See Collins v. Davis, 68 N.C. App. 588, 592–93, 315 S.E.2d 759,
762 (1984); Shaw v. Gee, 2018 NCBC LEXIS 109, at *17 (N.C. Super. Ct. Oct. 19,
2018). Moody’s alleged coverup relates to Vanguard’s claims of disloyalty, not to his
request for advancement. If an official’s alleged misconduct amounted to unclean
hands, it “would turn every advancement case into a trial on the merits of the
underlying claims,” contrary to the nature and purpose of advancement. Reddy, 2002
Del. Ch. LEXIS 69, at *28–29.
29. Vanguard may well prove that Moody breached the operating agreement
and his duties to the company. For purposes of this motion, the Court assumes that
he did. Taking those allegations as true, the upshot is that Moody might not be
entitled to indemnification at the end of the case and that he might have to repay
expenses advanced to him just as he said he would in the undertaking. But it is not
a defense to the obligation to advance expenses in the first place. C. Advancement and Moody’s Counterclaims
30. The pleadings establish Moody’s right to advancement, and Vanguard has
not put forward any defense germane to that issue. The operating agreement
therefore requires Vanguard to advance all expenses incurred “in defending” this
action. (See Operating Agrmt. § 3.7(b).) Moody argues, and Vanguard disagrees, that
this includes expenses incurred to litigate his counterclaims. (See Br. in Supp. 20,
ECF No. 79.)
31. Citing the same Delaware case law, both sides agree that “defending” can
include asserting counterclaims. Few counterclaims are truly defensive in character,
though. The Delaware Supreme Court opened the door to advancement for
compulsory counterclaims, observing that they arise out of the same transaction as
the original claims, are naturally “part of the same dispute,” and might “defeat, or
offset,” the original claims. Citadel Holding Corp. v. Roven, 603 A.2d 818, 824 (Del.
1992). “In other words, a counterclaim fits within the ‘in defending’ language if it
defends the corporate official by directly responding to and negating the affirmative
claim.” Zaman, 2008 Del. Ch. LEXIS 60, at *122; see also Sun-Times Media Grp.,
Inc. v. Black, 954 A.2d 380, 397 (Del. Ch. 2008).
32. Most of Moody’s counterclaims do not directly respond to the claims asserted
against him. He alleges, for example, that Vanguard refused to pay him for accrued
vacation days as required by his employment agreement. (See Defs.’ Am. Countercl.
¶¶ 140–41.) That claim has nothing to do with the self-dealing and disloyalty alleged
against Moody. At the hearing, his counsel agreed as much. 33. Moody’s other counterclaims also appear to be unrelated to the original
claims. He alleges that Vanguard denied his request to inspect its books, breached a
profit-sharing agreement, and breached implied covenants of good faith and fair
dealing in his various employment-related agreements. (See Defs.’ Am. Countercl.
¶¶ 115, 132, 147.) These claims do not directly respond to any of the allegations
against Moody. And if he is successful, they would not “operate to defeat the
affirmative claims against” him. Zaman, 2008 Del. Ch. LEXIS 60, at *122.
34. Moody makes no serious attempt to show otherwise. Rather, he seems to
contend that it will be hard to disentangle expenses for any given claim because of
the all-encompassing, “scorched-earth litigation strategy” taken by Vanguard. (Br.
in Supp. 20.) How to treat specific invoices and line entries—that is, whether they go
to advanceable or nonadvanceable claims, or to a bit of both—is a question for another
day. For now, limited to the pleadings, the Could decides only whether the
counterclaims are advanceable. The counterclaims based on Moody’s informational
rights, vacation days, and profit-sharing are not advanceable under any reasonable
interpretation of “defending” in section 3.7(b).
35. That leaves the indemnification and advancement counterclaims, which
neither side directly addresses. Officials “who successfully prosecute an
advancement suit are generally entitled to an appropriate award of fees for the
expenses incurred in litigating the suit, unless the parties have agreed otherwise.”
Thompson v. ORIX USA Corp., 2016 Del. Ch. LEXIS 84, at *19 (Del. Ch. June 3,
2016); accord Nielsen v. EBTH, Inc., 2019 Del. Ch. LEXIS 1291, at *38 (Del. Ch. Sept. 30, 2019). The rationale for this rule, at least in the LLC context, is based on the
freedom of contract. Members of an LLC can tailor the operating agreement as
desired, including by allocating the risk of a dispute about advancement to the official
rather than the company. When the members agree to advance expenses to the outer
limit, the risk goes to the company, and relief would be less than complete if the
official had to bear the expense of holding the company to its promise. See, e.g.,
Tulum Mgmt. USA LLC v. Casten, 2015 Del. Ch. LEXIS 308, at *8–9 (Del. Ch. Dec.
23, 2015) (allowing fees for advancement when operating agreement required
advancement “to the fullest extent provided or permitted by” law).
36. Vanguard’s operating agreement does not exclude fees for pursuing
advancement. It requires advancement of “all expenses” and “[t]o the maximum
extent permitted by law.” (Operating Agrmt. §§ 3.7(a), (i).) The Court is not aware
of any law that would limit Moody’s right “to recover his legal fees incurred in seeking
advancement” and therefore concludes that he is entitled to do so. Tulum Mgmt.
USA, 2015 Del. Ch. LEXIS 308, at *9.
D. Procedural Matters
37. Finally, Vanguard lodges a procedural objection. In Wheeler, an aggrieved
company official sought advancement through a motion for preliminary injunction,
which the Court denied because he had not shown a threat of irreparable harm. See
Wheeler, 2018 NCBC LEXIS 156, at *42–52. Vanguard contends that Moody’s
request for immediate advancement is a disguised motion for a preliminary
injunction. (See Opp’n 20–21.) 38. This misunderstands the distinction between temporary and final relief and
draws the wrong lessons from Wheeler. The purpose of a preliminary injunction is to
preserve the status quo pending a final resolution of the merits. See A.E.P. Indus.,
Inc. v. McClure, 308 N.C. 393, 400, 302 S.E.2d 754, 759 (1983). It is extraordinary
relief, requiring litigants to take action or refrain from action, under penalty of
contempt, before liability is established and judgment entered. The risk of error is
higher in that prejudgment posture, dealing as it does with probabilities rather than
established fact. Wheeler’s denial of temporary, prejudgment relief faithfully applied
these settled principles.
39. By contrast, entry of judgment on the pleadings is a final decision on the
merits. Its purpose is to allow early and efficient resolution of disputes when
discovery would be of no use. Most cases turn on contested facts and are not suited
to early relief. But there is no reason to delay judgment when, giving every advantage
to the nonmoving party, the pleadings establish all the pertinent facts and leave room
for only one outcome. Wheeler does not address, much less caution against, summary
adjudication of advancement claims, which the Court has shown a willingness to do
when applying the law of other States. See Islet Scis., Inc. v. Brighthaven Ventures,
LLC, 2017 NCBC LEXIS 3, at *16–22 (N.C. Super. Ct. Jan. 12, 2017) (applying
Nevada law and granting Rule 12(c) motion in advancement dispute).
40. Vanguard correctly observes that the pleadings do not establish the amount
of its obligation. But all that is at issue at this moment is whether Vanguard has an
obligation to advance expenses. It does, for all the reasons discussed above. The onus is now on the parties and their counsel to confer in good faith about the expenses that
Moody has incurred. If they cannot agree, the Court will have to decide those disputes
with a more complete record. The potential for future disputes, though, is no reason
to postpone a decision on the merits.
41. Indeed, Vanguard’s position, if accepted, would make North Carolina an
outlier. Courts around the country routinely decide advancement disputes in
summary fashion. This is because “[a]dvancement cases are particularly appropriate
for resolution on a paper record . . . .” DeLucca v. KKAT Mgmt., LLC, 2006 Del. Ch.
LEXIS 19, at *20 (Del. Ch. Jan. 23, 2006). With rare exception, the right to
advancement depends only on the pleadings that allege misconduct by the official and
the contract that defines the right. Delay would serve no useful end but would
threaten to “render the right meaningless.” United States v. Stein, 452 F. Supp. 2d
230, 272 (S.D.N.Y. 2006). In Delaware and elsewhere, courts apply ordinary rules of
civil procedure—most commonly summary judgment but also judgment on the
pleadings—to expedite decisions when appropriate. See, e.g., Mitchell Co. v. Campus,
2009 U.S. Dist. LEXIS 16694, at *2 (S.D. Ala. Mar. 3, 2009) (summary judgment);
Morgan v. Grace, 2003 Del. Ch. LEXIS 113, at *3–4 (Del. Ch. Oct. 29, 2003) (same);
see also Freeman Family LLC v. Park Ave. Landing LLC, 2019 Del. Ch. LEXIS 149,
at *2–3 (Del. Ch. Apr. 30, 2019) (judgment on the pleadings). The Court sees no
reason to take a novel and different approach here.
42. Although advancement has been the subject of few North Carolina cases,
this will not be the last. To ensure that an advancement dispute receives a full, fair, and expeditious hearing, litigants should bring it to the Court’s attention in their case
management report and at the case management conference. That would allow the
Court to create a case management schedule that accounts for early motions practice
while giving each side an opportunity to address, among other things, the need for
limited discovery and other matters that might cause delay.
III. CONCLUSION
43. For all these reasons, the Court GRANTS in part Moody’s motion for
judgment on the pleadings. Moody is entitled to advancement for all claims asserted
against him and for his own counterclaims for advancement and indemnification. He
is not entitled to advancement for his other counterclaims.
44. No later than August 25, 2020, counsel shall meet and confer in good faith
to determine the amount of advanceable expenses incurred by Moody to date and to
establish a procedure for ongoing advancement. If disputes arise, Moody may file a
motion for payment of advanceable expenses with appropriate supporting materials
on or before September 8, 2020, and Vanguard may file objections within fourteen
days of any motion. These briefs shall be limited to 2,500 words.
SO ORDERED, this the 4th day of August, 2020.
/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases