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Zaman v. Amedeo Holdings, Inc., No. 3115-VCS (Del. Ch. May 23, 2008)

May 23, 2008

In a post-trial decision, the Court of Chancery found, among other things, that two agents with broad managerial authority over a family of corporations beneficially owned by the brother of the Sultan of Brunei were entitled to indemnification for attorneys’ fees incurred in successfully attaining the dismissal of two actions filed against them by certain corporations they served and also were entitled to advancement for most of the claims pending against them (and most of their responsive counterclaims) in an ongoing state court action. Each of the defendant Delaware corporations had similar bylaws providing for mandatory indemnification and advancement of expenses to, among others, persons serving at the request of the corporation as agents of another entity. The Court held that where a bylaw providing for indemnification states that the corporation will “indemnify an agent . . . to the full extent permitted by Delaware law,” the corporation is contractually bound to indemnify the agent if the agent is successful on the merits or otherwise in the litigation.

Finding that the plaintiff agents were successful in attaining the dismissal of actions filed against them in a federal district court and a London court, the Court determined that the plaintiffs were entitled to indemnification for the attorneys’ fees incurred in those actions. Importantly, the Court found, consistent with its decision in VonFeldt addressing the issue of whether directors of wholly owned subsidiaries serve at the request of the parent corporation, that the agents were serving at the request of Delaware corporations up the ownership chain because the brother of the Sultan of Brunei was the beneficial owner of the entities and exercised complete control over those entities (without regard for corporate formalities). With respect to the advancement claims, the Court went through each claim in the state court amended complaint to determine whether or not each such claim was based upon the corporate capacities of the agents. Where there was a nexus between the plaintiffs’ actions and the defendant corporations, advancement was ordered. The Court determined, however, that the amount of any indemnification and advancement should be reduced to the extent that natural persons or entities not controlled by the plaintiffs were also named as defendants in the litigations and where attorneys’ fees could be attributed to those persons’ or entities’ defense.

In analyzing the plaintiffs’ counterclaims in the state-court action, the Vice-Chancellor considered the Delaware Supreme Court’s holding in Citadel Holding Corp. v Roven and interpreted it to mean that a counterclaim fits within the “in defending” language of an advancement and indemnification provision when the counterclaim “defends the corporate official by directly responding to and negating the affirmative claim” against the official. All but two of the counterclaims asserted by the plaintiffs or their wholly-owned entities -- those for abuse of process and malicious prosecution -- directly responded to and negated the affirmative claims against the plaintiffs in the state court action. The Court also considered whether the amounts plaintiffs sought for advancement and indemnification were reasonable.

The Court rejected the argument that Roven stood “for the proposition that a party seeking advancement must provide portions of billing statements that might reveal its defense strategy to its litigation adversary [thereby waiving the attorney-client privilege] as a condition to vindicating its contractual right to advancement” stating that Roven merely meant that “the party seeking advancement must provide a reasonable basis for its request, and must waive privilege to the extent necessary to accomplish that end.” Because the defendants could not show the redacted bills they received did not “provide them with a fair indication of the work performed” for any subject of work performed and because the plaintiffs’ costs of litigation were less than the defendants’ costs of prosecuting the litigation, the Court rejected defendants’ contention that the plaintiffs’ advancement and indemnification costs were unreasonable. The plaintiffs were also awarded “fees on fees” for “80% of their costs of prosecution” to reflect that they did not win all of their claims for advancement and indemnification.

The full opinion is available here