Thompson v. ORIX USA Corp., C.A. No. 11746-CB (Del. Ch. June 3, 2016) (Bouchard, C.)

In this letter opinion, the Court of Chancery granted plaintiffs’ motion for summary judgment for advancement under a corporation’s certificate of incorporation, and denied defendants’ motion for summary judgment opposing advancement under the certificate of incorporation and a related limited liability company’s operating agreement.

Plaintiff James Thompson is the founder and chief executive officer of Preston Hollow Capital, LLC (“Preston Hollow”). From 1997 until 2013, Thompson worked in various roles for ORIX USA Corporation (“ORIX USA”) and ORIX Capital Markets, LLC (“ORIX Capital” and collectively with ORIX USA, the “ORIX Entities”), including as an officer and a director. Plaintiff Clifford Weiner served as an employee and officer at ORIX USA from 1997 to 2014 and then joined Preston Hollow. On October 23, 2015, ORIX USA filed suit against Preston Hollow (the “Underlying Action”), alleging, among other things, that Preston Hollow induced plaintiffs to breach their fiduciary duties to ORIX USA, including by misappropriating confidential information. Although the complaint in the Underlying Action did not name Thompson or Weiner as defendants, it implicated them. Plaintiffs sent a letter to the ORIX Entities demanding advancement or a binding confirmation that the ORIX Entities would not commence any claims or counterclaims against plaintiffs as officers or employees of the ORIX Entities. The ORIX Entities denied plaintiffs’ request for advancement, noting that they were aware of no pending or threatened claims against plaintiffs.

Using general rules of contract interpretation, the Court considered the advancement rights provided for in ORIX USA’s certificate of incorporation, which granted advancement (i) to a person who “who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action . . .” (ii) “by reason of the fact that he was or is a director, officer, employee or agent of the Corporation . . .” for (iii) “expenses incurred in connection with any proceeding.” The Court found that although plaintiffs were not named as parties in the Underlying Action, they were “involved in” the Underlying Action because one of the grounds for ORIX USA’s claims focused on plaintiffs’ conduct. The Court further found that even if the information that plaintiffs’ allegedly misappropriated was obtained through plaintiffs’ actions as employees, rather than in their corporate capacities, they were entitled to advancement because the advancement provisions in ORIX USA’s certificate of incorporation covered one’s involvement by reason of his status as an employee, in addition to being a director or officer. The Court distinguished prior cases that held that conduct related to an employment agreement could not be the subject of advancement, finding that the claims at issue challenged plaintiffs conduct generally and their alleged misdeeds in their official capacity. Because it was unclear how much of the conduct at issue took place after plaintiffs left ORIX USA, the Court found that it was appropriate for counsel to monitor the expenses for which advancement is requested and address any disputes at the indemnification stage. The Court granted plaintiffs’ motion for summary judgment and denied defendants’ motion for summary judgment regarding advancement under ORIX USA’s certificate of incorporation, noting that plaintiffs were not entitled to advancement for expenses relating to Preston Hollow’s litigation of the Underlying Action.

The Court then turned to the advancement rights provided for in ORIX Capital’s LLC agreement, which were similar to those provided for in ORIX USA’s certificate of incorporation. However, the LLC agreement did not include a provision covering persons who were “involved in” proceedings. The Court found that though plaintiffs had not yet been named as defendants in the Underlying Action, plaintiffs had raised a genuine question of fact as to whether they were threatened to be named defendants in the Underlying Action, and therefore denied defendants’ summary judgment motion regarding advancement under the LLC agreement.

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