Centrella v. Avantor, C.A. No. 2022-0876-NAC (Del. Ch. July 1, 2024) (Cook, V.C.)

In this post-trial memorandum opinion, the Court of Chancery (the “Court”) considered whether the Plaintiff was entitled to advancement pursuant to the bylaws of his former employer’s parent company.   Because of the Defendant company’s broad bylaw language creating a conclusive presumption that employees of its subsidiaries were entitled to mandatory advancement, the answer was yes.  

In 2022, Defendant Avantor, Inc.  (“Avantor”) sued Plaintiff Marc Centrella (“Centrella”) in the Delaware Court of Chancery (the “Underlying Action”), seeking to enjoin Centrella’s alleged use of confidential Avantor information in violation of restrictive covenants under a Personal Services Agreement after Centrella left his employment at Avantor’s subsidiary, VMR Management Services (“VM”).  Avantor alleged in the Underlying Action that Centrella left VM to work for a competitor.  Centrella made a demand for advancement from Avantor to defend the Underlying Action and submitted an undertaking, which Avantor rejected.  Centrella then initiated this action for advancement (the “Advancement Action”). 

Centrella pursued advancement of fees and expenses associated with the Underlying Action under the theory that he was a former employee of VM, a subsidiary of Avantor.  Avantor’s bylaws extended broad advancement rights to “indemnitees,” defined in relevant part as anyone “who was or is made party or is threatened to be made a party to or is otherwise involved in” any civil lawsuit “by reason of the fact that he or she . . . is or was serving at the request of [Avantor, Inc.] as a director, officer, employee, agent or trustee of another corporation or of a partnership, joint venture, trust or other enterprise . . .”.   Notably, the Bylaws specified that any “employee or agent” of an LLC of which Avantor owned at least 50% equity interest, would be “conclusively presumed” to satisfy the above “indemnitee” definition.

The Advancement Action proceeded to trial.  Notably, neither party disputed that Avantor owned at least 50% of VM or that VM employees were entitled to advancement under Avantor’s bylaws.  Rather, Avantor argued that it, not VM, was Centrella’s employer, even though it was a “holding company with no payroll employees.” The Court concluded that Avantor’s position was untenable under the plain language of the bylaws, which did not require indemnitees to be exclusively employed by VM. 

The Court held that VM was Centrella’s employer.  The Court applied the Newton test, typically but not exclusively used in the workers’ compensation context, and analyzed four factors: (1) who hired Centrella; (2) who had the power to fire Centrella; (3) who paid Centrella’s wages; and (4) who was in control of Centrella’s work activities.   The Court explained that the right to control was a hallmark feature of the employee/employer relationship and weighed more heavily than the other factors.  The Court then examined the ways in which VM exercised control over Centrella during his two-year tenure, finding VM dominated the hiring process, paid Centrella’s wages, approved Centrella’s vacation requests, reimbursed Centrella for various business expenses, and was listed as Centrella’s employer on his tax and payroll documents.  VM likewise controlled Centrella’s employment by having Centrella report to VM personnel.  Thus, the bylaws’ conclusive presumption of indemnitee status applied.

Additionally, Avantor argued that it did not sue Centrella in the Underlying Action “by reason of” Centrella’s employment because it alleged Centrella breached a personal contract on which equity grants were conditioned.  The Court rejected this argument, holding that the equity grants were “inextricably intertwined” with Centrella’s employment and that the Underlying Action sought to enjoin Centrella’s use of confidential information obtained during his employment, making the Underlying Action one initiated “by reason of” Centrella’s employment. 

Finally, Avantor argued that because it voluntarily dismissed its claims in the Underlying Action, Centrella’s right to advancement should only extend to that point, excluding coverage for Centrella’s compulsory counterclaims.  But the Court rejected this limitation, noting that Avantor’s dismissal was without prejudice, leaving open the possibility of it suing Centrella again, especially when Avantor gave no clear assurance in its briefing or at oral argument that it would not do so. 

The Court also awarded Centrella’s fees on fees.  The bylaws expressly provided for fees on fees to the “fullest extent permitted by law” if the indemnitee was “successful in whole or in part” in enforcing their advancement right.  The Company argued, however, that Centrella should only recover fees proportional to the success of the theories on which he prevailed, meaning that the Court would reduce the fees if any legal argument made was either rejected or unnecessary.  The Court scoffed at the “absurd” idea, stating Delaware “law is not concerned with which theory a party prevails on when it comes to apportioning fees on fees for varying levels of success. Instead, it is concerned with the actual success achieved.” Because Centrella’s advancement claim was successful, he was entitled to fees on fees in full, even if certain arguments had not been successful or were not addressed by the Court. 

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