Hoffman v. First Wave
BioPharma, Inc., C.A. No. 2023-0097-MTZ (Del. Ch.
September 27, 2023)
A company's board of directors suspected one of its members had
leaked the company's financial information to a third party and
that the third party used the information to obtain a more
favorable settlement with the company. In response, the board
formed a board committee for discussion of confidential matters
consisting of all directors other than the one suspected of having
leaked information. The excluded director engaged an attorney to
contest the formation of the board committee and filed an action
for the advancement of his legal fees. He relied on an
indemnification agreement that granted him a mandatory advancement
right for fees incurred by reason of his corporate status in
connection with a covered proceeding; he argued that the directors
must have investigated his conduct if they had reached a conclusion
that he had leaked information and that an investigation was a
covered proceeding.
In this post-trial decision, the Court of Chancery determined plaintiff was not entitled to advancement. The Court found no documentary or testamentary evidence that a covered proceeding had occurred. The Court next found plaintiff had not adequately pled an alternative claim for advancement. At first cursorily in his pre-trial brief, and then more fully at trial, the plaintiff developed an alternative theory that the company had "threatened" to investigate him and that under the indemnification agreement, a threatened proceeding was a covered proceeding. The Court determined this late-arising theory did not provide the defendant with fair notice of an intent to litigate a claim based on a threatened proceeding, and that in any event plaintiff had failed to move to amend his complaint at or after trial to include such a claim. Accordingly, the Court ruled in favor of the defendant company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.