Court Opinion

ID: 4677592
Source: CourtListenerOpinion
Date Created: 2021-04-15 16:03:18.797065+00
Date Added: 2024-06-11T08:03:39.288215
License: Public Domain

COURT OF CHANCERY
                                     OF THE
    SAM GLASSCOCK III
     VICE CHANCELLOR
                               STATE OF DELAWARE                     COURT OF CHANCERY COURTHOUSE
                                                                              34 THE CIRCLE
                                                                       GEORGETOWN, DELAWARE 19947

    Richard P. Rollo, Esq.                          Steven L. Caponi, Esq.
    Kevin M. Gallagher, Esq.                        Matthew B. Goeller, Esq.
    Travis S. Hunter, Esq.                          K&L GATES LLP
    Nicole K. Pedi, Esq.                            600 King Street, Suite 901
    Angela Lam, Esq.                                Wilmington, Delaware 19801
    Christian C.F. Roberts, Esq.
    RICHARDS, LAYTON & FINGER, P.A.
    One Rodney Square
    920 North King Street
    Wilmington, Delaware 19801

                 RE:    Laura Perryman, et al. v. Stimwave Technologies Incorporated,
                        C.A. No. 2020-0079-SG, Petitioner’s Motion for Recoupment

                              Submitted: April 9, 2021
                              Decided:   April 15, 2021

Dear Counsel:

         This Letter Opinion considers, and rejects, Respondent Stimwave

Technologies Incorporated’s (“Stimwave”) Motion for Recoupment (the

“Motion”).1 The facts of this contentious case have been laid out in great detail in

my post-trial Memorandum Opinion (the “Post-Trial Opinion”) 2 and my Letter

1
  The Motion was made orally during oral argument on Petitioner Laura Perryman’s Motion for
Reargument. 2-3-2021 Oral Arg. re Resp’t’s Mot. for Entry of an Order Implementing the Court’s
Memorandum Op., Pet’r’s Mot. for Reargument, at 14:17, Dkt. No 147.
2
  Perryman v. Stimwave Techs. Inc., 2020 WL 7240715 (Del. Ch. Dec. 9, 2020).
Decision denying Petitioner Laura Perryman’s Motion for Reargument; 3 I refer

interested readers to those opinions for a more complete recitation. Here, it is

sufficient merely to note that: (1) in my Post-Trial Opinion, I found that Petitioner

Laura Perryman was not entitled to advancement by Respondent Stimwave, but her

husband, Petitioner Gary Perryman, was; 4 and that (2) the Perrymans have

represented that “we . . . undertake to repay any Expenses advanced if it shall

ultimately be determined that we are not entitled to be indemnified against such

Expenses.”5

       Stimwave had, at the time of my Post-Trial Opinion, advanced over $1.4

million to Laura Perryman. 6 While it admits that some of that advancement would

have covered work performed for Gary, Stimwave believes that approximately $1.2

million of that amount went towards work for Laura. Of course, Gary’s counsel may

dispute this allocation of fees—that is an issue for another day.

       But in any event, both Stimwave’s entitlement to and practical ability to obtain

disgorgement are fraught with difficulty. As to the latter, the Petitioners, in filing

their Complaint for Advancement and Indemnification, attached an affidavit from

3
  Perryman v. Stimwave Techs. Inc., 2021 WL 608266 (Del. Ch. Feb. 17, 2021).
4
  As in my prior decisions, I refer to the Perrymans individually by their first names for clarity. In
doing so, I intend no disrespect.
5
  Ex. 1 to Resp’t’s Mot. for Entry of an Order Implementing Dec. 9, 2020 Memorandum Opinion,
Dkt. No. 138.
6
  Resp’t’s Mot. for Entry of an Order Implementing Dec. 9, 2020 Memorandum Op. ¶ 5, Dkt. No
138 [hereinafter, the “Motion for Implementing Order”].
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Laura asserting that she and her husband “currently own no real estate” and “have

under $50,000 of liquid assets and monthly expenses of approximately $12,000.”7

If these assertions are true, it seems likely that Laura is currently unable to repay the

amounts advanced to her. Perhaps sensing the futility of a Motion for Recoupment

directed at Laura, Stimwave seeks to have the amounts advanced to Laura credited

against the amounts to be advanced to Gary, who I have found to be entitled to

advancement.8 To be clear, it is Stimwave’s position that because Laura and Gary

entered a single recoupment undertaking which both signed, the resulting obligation

for recoupment is the responsibility of the marital unit by the entireties, and that the

marital unit is responsible to repay. It also asserts that any advancement obligation

to Gary on Stimwave’s part is really an asset of the same marital entireties.

Stimwave’s conclusion, rather remarkable to me, is that it may set-off advancement

to Gary, as entireties representative, in the amount Laura, as entireties representative,

was paid and, per Stimwave, is obligated to repay.

       Setting aside the issues of coverture and marital debt that the parties raise,

Stimwave’s Motion for Recoupment is, in the first instance, premature. As the

Supreme Court held in Kaung v. Cole Nat. Corp., recoupment for fees improperly

advanced is premature if brought before the indemnification liability is determined,

7
  Aff. of Laura Perryman in Supp. of Pet’r’s Opening Br. In Supp. of Their Mot. for a Temporary
Restraining Order and Mot. to Expedite ¶¶ 9–10, Dkt. No. 1.
8
  Motion for Implementing Order ¶¶ 10–11.
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“just as a direct recoupment claim would have been for fees [properly] advanced.”9

In Kaung, the respondent company had advanced fees for a non-legal consultant

under its advancement obligations. 10 The Court later found that those fees were not

advanceable and granted the respondent’s motion for recoupment.11 The Supreme

Court reversed, noting that although the petitioner employee was “not entitled to

advancement” of those fees, the recoupment claim was premature because liability

for indemnification had not yet been determined—and, in fact, could not be

determined in an advancement proceeding, which is summary in nature.12

       Stimwave attempts to distinguish Kaung by noting that the Petitioners’ claim

here is for both indemnification and advancement, and that Laura’s right to

indemnification is, therefore, before me. True.13 But the question of indemnification

has not yet been litigated, much less determined, and whether Stimwave may recoup

its improperly advanced fees will depend on that determination. Indeed, if I find

that Stimwave must indemnify Laura for her legal fees, the advanced amounts would

not be recoverable at all, and Stimwave will also be responsible for fees incurred but

not advanced. 14 In any event, the explicit terms of the undertaking only require

9
  884 A.2d 500, 509 (Del. 2005).
10
   Id. at 504.
11
   Id. at 505.
12
   Id. at 509.
13
   Verified Compl. For Advancement and Indemnification, Dkt. No. 1.
14
   While I found that Laura was not entitled to advancement because she did not enter a contractual
“indemnification agreement” which provided advancement rights, that finding does not dispose of
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payment after “it . . . [is] ultimately . . . determined that we [the Perrymans] are not

entitled to be indemnified” for amounts advanced.15

       Even disregarding Kaung, however, Stimwave’s attempt to credit fees

advanced to Laura against fees owed to Gary (as in, to set those amounts off against

Gary’s advancement rights), is, to my mind, misguided. Delaware has, ever since

1852, repudiated the doctrine of coverture. 16 Since that time—a decade, I note,

before the Civil War—this Court has recognized women as juridical persons, full

citizens 17 with property rights separate from those of their husbands. 18 Gary is a

corporate fiduciary. His right to advancement was extended to him without regard

to his marital status, to encourage his participation in Stimwave.                           Laura,

independently, is also a corporate fiduciary. She has indemnification rights which

may or may not prove sufficient to cover her legal fees here; she has received

advancement to which she was not entitled, which she may or may not be responsible

the issue of her right to indemnification; the corporate documents themselves provide for
indemnification.
15
   Ex. 1 to Resp’t’s Mot. for Entry of an Order Implementing Dec. 9, 2020 Memorandum Opinion,
Dkt. No. 138.
16
   See 13 Del. C. § 311 (West Del. C. Ann.) (citing Rev. Code Del. 1852, § 1469).
17
   Full citizens with regard to property rights, that is. Delaware was slow to extend the emoluments
of citizenship to women; for example, the 19th Amendment, extending the right to vote to women,
was ratified by the States on August 18th, 1920, but timely ratification efforts in Dover were
unsuccessful, and the First State did not ratify until 1923, by which time the action was of symbolic
value only.
18
   See 13 De. C. § 311.
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to repay. Their advancement and indemnification rights do not strike me as marital

assets.

       Stimwave argues that it takes no issue with Laura and Gary having separate

property rights, 19 but argues that the undertaking by Laura and Gary to repay

expenses, a single undertaking signed by each, was a joint undertaking, and as a

result the amounts paid Laura represent a marital debt that is jointly owed by both

Laura and Gary. 20 But even should Stimwave be correct in this assertion, any

obligation to repay the improperly-advanced fees will be (if Laura proves not entitled

to indemnification) simply a debt owed Stimwave. To my mind, allowing a set-off

of debt owed to an entity, even one owed directly by an indemnitee, against his

advancement rights is unwarranted and would defeat the purpose of advancement,

which is to provide individuals with an incentive to provide corporate services and

allow them to defend a claim that they may not be able to fund themselves, pending

indemnification.

19
   Note that I do not in any sense accuse Stimwave of misogyny in attempting to shift Laura’s
repayment obligation on to her husband; I am confident that, were Laura and Gary’s positions
reversed, Stimwave would have made the same argument.
20
   Resp’t’s Reply in Supp. of Recoupment ¶¶ 6–7 (citing Garrison v. Downing, 226 A.3d 195, 197
(Del. 2020), Dkt. No. 152.
                                              6
      For the foregoing reasons, the Respondent’s Motion for Recoupment is

DENIED without prejudice.

      IT IS SO ORDERED.

                                           Sincerely,

                                           /s/ Sam Glasscock III

                                           Sam Glasscock III

cc:   All counsel of record (by File & ServeXpress)

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