Opinion ID: 2264044
Heading Depth: 1
Heading Rank: 2

Heading: Court of Chancery Denies Stay

Text: In considering the first Kirpat factor, the Court of Chancery held that Homestore failed to demonstrate even the remotest likelihood of success on the merits of its appeal. The Court of Chancery noted that Homestore's motion contained a laundry list of all of the decisions in this case and attempted to reargue the same contentions that, according to the Court of Chancery, it had already thoughtfully considered and rejected. The Court of Chancery concluded that [s]imply stating an intention to appeal is insufficient ... to demonstrate a likelihood of success on the merits. With regard to the second Kirpat factor, the Court of Chancery held that Homestore failed to demonstrate that it will suffer any irreparable harm. Homestore argued that paying Tafeen's advancement was a financial hardship. In support of that assertion, Homestore relied upon an affidavit that was seventeen months old. Homestore's current public filings were introduced by Tafeen to demonstrate that Homestore's financial condition has improved significantly since the time of the affidavit. In fact, Homestore's records reflected an accrual of $7.2 million as an estimate of the potential advancement due to its former officers, including Tafeen. Thus, the Court of Chancery ruled: Turning to the issue of irreparable harm to the movant, I am unpersuaded by Homestore's allegations of harm primarily because, as plaintiff points out, Homestore has provided the Court with no current evidence that it will suffer substantial and irreparable harm. Homestore correctly points out that unless this Court approves the current motion, that Tafeen will surely attempt to receive the advancement fees that this Court has ruled he is entitled to. To demonstrate irreparable harm, Homestore relies only upon the December 2003 affidavit of Homestore's General Counsel, Michael R. Douglas. This affidavit is more than a year and a half old, and is no longer sufficient to demonstrate to this Court that Homestore's financial condition is such that the payment of Tafeen's advancement would do irreparable harm to Homestore. In fact, as plaintiff points out, Homestore's financial condition is far less precarious than it was in December 2003, with Homestore now having cash and short-term investments of $62.9 million versus the $35.5 million it had as of December 31, 2003. Clearly, Homestore is financially much healthier than it was in 2003. In addition to Homestore's improved financial condition, Homestore's most recent quarterly report states that Homestore has already recorded an accrual of $7.2 million for its estimate of the potential advancement of legal costs to certain of its former officers, including Tafeen in the quarter ended September 30, 2004. It is clear to the Court that Homestore has failed to demonstrate that it will suffer any irreparable harm if the Court fails to approve its pending motion. In considering the third Kirpat factor, the Court of Chancery found that Mr. Tafeen would suffer severe and irreparable harm as a result of the stay because it would prevent Tafeen from adequately defending himself in the numerous ongoing litigations ... According to Tafeen, this protracted advancement litigation has imposed severe financial hardship on him, forced him to selectively defend himself in the underlying proceedings for which he seeks advancement, and now threatens to deprive him of the ability to effectively defend himself in a criminal trial in which he faces decades in prison if convicted. The Court of Chancery was persuaded by the argument that Homestore's proposed supersedeas bond simply does not address the irreparable harm to Mr. Tafeen because, by delaying payment, it would eliminate the value of advancement (as opposed to indemnification) altogether. The Court of Chancery stated: Tafeen has recently been indicted by the United States Department of Justice, the Securities and Exchange Commission has levied civil charges against him, and there are various other civil litigations in which he is a defendant. To date, Tafeen has incurred over $4.5 million in legal fees and expenses defending these suits, and he still owes payment on roughly $1.8 million more in legal fees. Additionally, Tafeen's criminal trial has been set to begin on July 12, 2005, and the government has estimated that it will take at least two months to put on its case. A stay, which would prevent Homestore's advancement payment from reaching Tafeen in time to pay for his defense, would serve not only to deny Tafeen the very money that this Court believes he is contractually entitled to, but would also force Tafeen, who is severely short of funds, to selectively defend these various actions, a harm that could never be undone regardless of Homestore's supersedeas bond. In addressing the fourth Kirpat factor, the Court of Chancery found that permitting Homestore to further delay its advancement obligations would be inimical to the public policy of this State of affording advancement claimants prompt and meaningful relief pursuant to Del.Code Ann. tit. 8, § 145(k). The Court of Chancery stated: The express purpose of 8 Del. C. § 145, which provides advancement and indemnification rights to officers and directors, is to promote the desirable end that corporate officials will resist what they consider unjustified suits and claims, secure in the knowledge that their reasonable expenses will be borne by the corporation they have served if they are vindicated. [5] ... Clearly, to be of any value to the executive or director, advancement must be made promptly, otherwise its benefit is forever lost because the failure to advance fees affects the counsel the director may choose and litigation strategy that the executive or director will be able to afford. To grant Homestore's motion would allow it to continue to be derelict in its contractual protection of its directors/officers, and that would force its directors/officers to compromise their own litigations in the face of cost concerns, a result that is clearly against Delaware's policy of resolving advancement issues as quickly as possible.