Court Opinion

ID: 4326375
Source: CourtListenerOpinion
Date Created: 2018-10-31 21:08:29.12329+00
Date Added: 2024-06-11T14:46:49.440906
License: Public Domain

COURT OF CHANCERY
                                                 OF THE
                                         STATE OF DELAWARE

TAMIKA R. MONTGOMERY-REEVES                                          Leonard Williams Justice Center
          VICE CHANCELLOR                                             500 N. King Street, Suite 11400
                                                                     Wilmington, Delaware 19801-3734

                                    Date Submitted: July 12, 2018
                                   Date Decided: October 31, 2018

         M. Duncan Grant, Esquire                     Eric Lopez Schnabel, Esquire
         Christopher B. Chuff, Esquire                Robert W. Mallard, Esquire
         Pepper Hamilton LLP                          Alessandra Glorioso, Esquire
         1313 N. Market Street, Suite 5100            Dorsey & Whitney LLP
         Wilmington, DE 19801                         300 Delaware Avenue, Suite 1010
                                                      Wilmington, DE 19801

               RE:     Diane C. Creel v. Ecolab, Inc.
                       Civil Action No. 12917-VCMR

     Dear Counsel:

               This letter opinion addresses Defendant’s Motion for Summary Judgment

     Dismissing Count I of the Complaint. For the reasons stated below, I deny the

     Motion for Summary Judgment.

     I.        BACKGROUND
               The facts in this opinion derive from the pleadings, the parties’ submitted

     affidavits, and exhibits cited therein. 1

     1
               Ct. Ch. R. 56(c).
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 2 of 15

      This action involves Diane C. Creel’s request for indemnification from

Ecolab, Inc. (“Ecolab”), a Delaware corporation in the business of providing water,

hygiene, and energy technologies.2       Creel was the President, Chief Executive

Officer, and Chair of the Board of Directors of Ecovation, Inc. (“Ecovation” or the

“Company”), Ecolab’s predecessor.3 Various stockholders of Ecovation sued Creel

for breaches of fiduciary duty in two underlying actions.4 One action ended in

settlement, 5 and the other ended when the court granted summary judgment in favor

of Creel. 6 This motion does not turn on any of the facts in these underlying actions.

Therefore, I spare the reader the long recitation that would be necessary to fully

explain the various relationships and allegations.

      In this motion, Ecolab seeks summary judgment, arguing that Creel was

obligated to, but did not, obtain its approval before agreeing to settle the underlying

action. 7 Three separate documents provide Creel with indemnification rights: the

2
      Compl. ¶¶ 7, 110.
3
      Id. ¶ 2.
4
      Id. ¶ 1; id. Ex. A ¶¶ 135-36.
5
      Id. ¶¶ 86-88; Def.’s Opening Br. 16.
6
      Compl. ¶ 92.
7
      Def.’s Opening Br. 31-42.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 3 of 15

Company’s Amended and Restated Certificate of Incorporation (the “Charter”), the

Company’s Bylaws (the “Bylaws”), and the Indemnification Agreement Ecolab

executed when Creel joined Ecovation (the “Indemnification Agreement”).8 Two

documents, the Charter and the Bylaws, clearly do not require any approval of the

settlement, and the parties do not dispute this interpretation of the documents’

indemnification provisions.9 The Indemnification Agreement clearly does require

approval of the settlement, and the parties do not dispute this interpretation of the

agreement.10 Instead, the Company argues that the Indemnification Agreement

supersedes the Charter and the Bylaws, and thus, under the terms of the

Indemnification Agreement, Creel must have obtained Ecolab’s approval of the

settlement to receive indemnification. 11 Therefore, the deciding issue in this motion

for summary judgment is strictly one of contract interpretation; I must determine

whether the Indemnification Agreement’s requirement for approval of the settlement

8
      Compl. Ex. D, at 16-17; id. Ex. E, at 9; id. Ex. F. Ecovation was formerly known
      as AnAerobics, Inc.; the Charter and Bylaws reflect the former name.
9
      Id. Ex. D, at 16-17; id. Ex. E, at 9; Def.’s Opening Br. 35; Pl.’s Answering Br. 25.
10
      Compl. Ex. F § 1(a); Def.’s Opening Br. 34; Pl.’s Answering Br. 25.
11
      Def.’s Opening Br. 31-42. The parties dispute whether Creel obtained Ecolab’s
      approval. Id. at 40-41; Pl.’s Answering Br. 28.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 4 of 15

supersedes the indemnification provisions of the Charter and the Bylaws or whether

the Charter and the Bylaws instead provide independent sources of indemnification.

II.   ANALYSIS

      A.     Standard of Review
      Summary judgment will be “granted if the pleadings, depositions, answers to

interrogatories and admissions on file, together with the affidavits, show that there

is no genuine issue as to any material fact and that the moving party is entitled to a

judgment as a matter of law.”12 The movant bears the initial burden of demonstrating

that there is no question of material fact. 13 When the movant carries that burden, the

burden shifts to the nonmoving party “to present some specific, admissible evidence

that there is a genuine issue of fact for a trial.” 14 When considering a motion for

summary judgment, this Court must view the evidence and the inferences drawn

from the evidence in the light most favorable to the nonmoving party. 15 Even so, the

12
      Twin Bridges Ltd. P’ship v. Draper, 2007 WL 2744609, at *8 (Del. Ch. Sept. 14,
      2007) (citing Ct. Ch. R. 56(c)).
13
      Deloitte LLP v. Flanagan, 2009 WL 5200657, at *3 (Del. Ch. Dec. 29, 2009).
14
      Id. (citing Watson v. Taylor, 829 A.2d 936 (TABLE), 2003 WL 21810822, at *2
      (Del. Aug. 4, 2003)).
15
      Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del. 1977); Fike v. Ruger, 754 A.2d 254,
      260 (Del. Ch. 1999), aff’d, 752 A.2d 112 (Del. 2000).
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 5 of 15

nonmoving party may not rely on allegations or denials in the pleadings to create a

material factual dispute. 16

      The dispute in this motion turns on contract interpretation. “[T]he rules that

govern the interpretation of statutes, contracts, and other written instruments apply

to the interpretation of corporate charters and bylaws.”17 “Delaware follows an

objective theory of contracts, ‘which requires a court to interpret a particular

contractual term to mean “what a reasonable person in the position of the parties

would have thought it meant.”’” 18         Delaware courts interpret the clear and

unambiguous terms of a contract according to their plain meaning.19 If a term in a

contract is reasonably susceptible to more than one interpretation, then that term is

ambiguous, but “[t]he parties’ steadfast disagreement over interpretation will not,

alone, render the contract ambiguous.”20

16
      Ct. Ch. R. 56(e).
17
      Charney v. Am. Apparel, Inc., 2015 WL 5313769, at *6 (Del. Ch. Sept. 11, 2015)
      (alteration in original) (quoting Sassano v. CIBC World Mkts. Corp., 948 A.2d 453,
      462 (Del. Ch. 2008)).
18
      Narayanan v. Sutherland Glob. Hldgs. Inc., 2016 WL 3682617, at *11 (Del. Ch.
      July 5, 2016) (quoting Charney, 2015 WL 5313769, at *10).
19
      Id.
20
      Estate of Osborn v. Kemp, 991 A.2d 1153, 1160 (Del. 2010) (citing Rhone-Poulenc
      Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1992)).
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 6 of 15

      B.     The Indemnification Agreement Does Not Supersede the Charter
             or the Bylaws
      “Section 145(f) makes clear that the indemnification and advancement rights

under the DGCL are not exclusive of any additional indemnification and

advancement rights a corporation chooses to provide through a separate

instrument.”21 The first sentence of Section 145(f) states,

             The indemnification and advancement of expenses
             provided by, or granted pursuant to, the other subsections
             of this section shall not be deemed exclusive of any other
             rights to which those seeking indemnification or
             advancement of expenses may be entitled under any
             bylaw, agreement, vote of stockholders or disinterested
             directors or otherwise, both as to action in such person’s
             official capacity and as to action in another capacity while
             holding such office.

In accordance with Section 145(f), companies often provide indemnification to their

directors and officers in their charters, bylaws, or other agreements.

      Creel relies on the indemnification provisions of the Charter and the Bylaws

as the sources of indemnification for her portion of the settlement. 22 Ecovation’s

21
      Narayanan, 2016 WL 3682617, at *9; see also Charney, 2015 WL 5313769, at *8;
      Danenberg v. Fitracks, Inc., 2012 WL 11220, at *5 (Del. Ch. Jan. 3, 2012).
22
      Compl. ¶¶ 103-04, 110. When Ecolab acquired Ecovation, it became obligated
      under the terms of the merger agreement to provide advancement and
      indemnification to Ecovation’s former officers and directors, including Creel, to the
      same extent as those officers and directors were entitled to advancement and
      indemnification under Ecovation’s Charter, Bylaws, or any other agreement. Id.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 7 of 15

Charter provides Creel with indemnification and advancement rights “to the fullest

extent authorized” by the General Corporation Law of Delaware:

             Each person who was or is made a party or is threatened
             to be made a party to or is otherwise involved in any
             action, suit or proceeding, whether civil, criminal,
             administrative     or     investigative     (hereinafter    a
             “proceeding”), by reason of the fact that he or she is or was
             a director or officer of the Corporation . . . whether the
             basis of such proceeding is alleged action in an official
             capacity as a director, officer, employee or agent or in any
             other capacity while serving as a director, officer,
             employee or agent, shall be indemnified and held harmless
             by the Corporation to the fullest extent authorized by the
             Delaware General Corporation Law . . . against all
             expense, liability and loss (including attorneys’ fees,
             judgments, fines, ERISA excise taxes or penalties and
             amounts paid in settlement) reasonably incurred or
             suffered by the indemnitee in connection therewith . . . .
             The right to indemnification conferred by this Article shall
             be a contract right and shall include the right to be paid by

      Ex. C § 7.5(a) (“[Ecolab] and [Empire Acquisition, Inc.] jointly and severally agree
      that all rights to indemnification and advancement of expenses for acts or omissions
      occurring prior to the [merger] (including acts or omissions in connection with this
      Agreement and the consummation of the transactions contemplated hereby) now
      existing in favor of the Company’s current and former directors and officers (each
      a ‘D&O Indemnified Party’) as provided in the Company’s Governing Documents,
      and in any indemnification agreements with the D&O Indemnified Parties, will
      survive the Merger and will thereafter continue in full force and effect in accordance
      with their terms. [Ecolab] and [Empire Acquisition, Inc.] jointly and severally will
      advance expenses to and indemnify the D&O Indemnified Parties to the same extent
      as the Indemnified Parties currently are entitled to advancement of expenses and
      indemnification.”).
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 8 of 15

             the Corporation the expenses incurred in defending any
             such proceeding in advance of its final disposition . . . . 23

      The Charter also contains a non-exclusivity provision:            “The rights to

indemnification and to the advancement of expenses conferred by this Article shall

not be exclusive of any other right which any person may have or hereafter acquire

under any provision of any statute, [the Charter], [the Bylaws], any agreement, . . .

or otherwise.”24

      Similarly, Evocation’s Bylaws provide Creel with indemnification and

advancement rights “[t]o the fullest extent authorized or permitted” by the General

Corporation Law of Delaware:

             To the fullest extent authorized or permitted by the
             Delaware General Corporation Law, as amended from
             time to time, the Corporation shall indemnify any person
             made, or threatened to be made, a party in any civil or
             criminal action or proceeding by reason of the fact that
             he . . . is or was a Director or corporate officer of the
             Corporation . . . . As used in this Article, the term
             “indemnify”, in all its forms, shall be deemed to include
             the advancement of legal and other expenses incurred in
             defending a civil or criminal action or proceeding.25

23
      Id. Ex. D, at 16-17.
24
      Id. at 17-18.
25
      Compl. Ex. E art. V, § 1, at 9.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 9 of 15

      Like the Charter, the Bylaws also include a non-exclusivity provision: “The

provisions of this Section 1 shall not be exclusive of any other rights to which any

such person may be entitled, whether contained in the Corporation’s [Charter], [the

Bylaws] or any agreement or resolution providing for indemnification and permitted

by law.” 26

      Creel does not rely on the Indemnification Agreement as a source of

indemnification,27 but Ecolab asserts that the Indemnification Agreement defines the

terms of Creel’s right to indemnification. 28 The Indemnification Agreement differs

from the Charter and Bylaws in its definition of covered expenses. The Charter

provides indemnification “against all expense, liability and loss (including

attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid

in settlement).”29 The Bylaws do not contain any definition of covered expenses.30

The Indemnification Agreement expressly provides indemnification against

“reasonable attorneys’ fees, judgments, fines and amounts paid in settlement (if such

26
      Id.
27
      See Compl. ¶¶ 103-04, 110.
28
      Def.’s Opening Br. 33.
29
      Compl. Ex. D, at 16.
30
      See id. Ex. E art. V, at 9-10.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 10 of 15

settlement is approved in advance by the Company),” which are defined collectively

as “Expenses.”31

      Ecolab acknowledges that the Charter and the Bylaws do not require approval

of the settlement to trigger indemnification. 32 It argues, however, that where a later

contract between parties covers the same subject matter as an earlier contract, the

new contract supersedes and controls whenever the two agreements conflict.33

Ecolab asserts that the Indemnification Agreement supersedes the indemnification

provisions of the Charter and the Bylaws because the Indemnification Agreement’s

definition of Expenses requires approval of the settlement. 34

      The Indemnification Agreement contains several clauses that refer to the

Charter and the Bylaws. For example, the Indemnification Agreement refers to the

Charter and the Bylaws in its non-exclusivity clause:

             The right to indemnification and advancement of
             Expenses provided by this Agreement shall not be
             exclusive of any other rights to which Indemnitee may be

31
      Id. Ex. F § 1(a), at 9-10.
32
      Def.’s Opening Br. 35.
33
      Id. at 32-33.
34
      Id. at 31-39.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 11 of 15

            entitled under the [Charter] or Bylaws . . . of the
            Company . . . ;

            PROVIDED, HOWEVER, that to the extent Indemnitee
            otherwise would have any greater right to indemnification
            and/or advancement of Expenses under any provision of
            the Charter or the Bylaws of the Company, Indemnitee
            shall be deemed to have such greater right pursuant to this
            Agreement; and,

            PROVIDED, FURTHER, that to the extent that any
            change is made to the Delaware law . . . , the Charter
            and/or the Bylaws of the Company that permits any greater
            right to indemnification and/or advancement of Expenses
            than that provided under this Agreement as of the date
            hereof, Indemnitee shall be deemed to have such greater
            right pursuant to this Agreement. 35

      The first clause refers to “any other rights” in the Charter or Bylaws. 36 This

language implicates rights broader than the “right to indemnification and

advancement of Expenses” only. 37         Interpreting the plain language of the

Indemnification Agreement, the first clause explicitly allows for broader

indemnification rights in the Charter or Bylaws and does not create a conflict. It

includes rights to indemnification and advancement of non-Expenses or expenses

35
      Id. § 16(a) (emphases and formatting added).
36
      Id.
37
      Id.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 12 of 15

covered by the Charter or Bylaws but not by the Indemnification Agreement. The

second clause clarifies that the Indemnification Agreement does not limit any

broader rights applicable to Expenses.         These two provisions have different

meanings. The first addresses rights other than Expenses, and the second directly

addresses rights to Expenses. Neither is superfluous.

      Additionally, the recitals include references to the Charter and the Bylaws that

support my interpretation of the Indemnification Agreement.                   Although

“‘[g]enerally, recitals are not a necessary part of a contract,’ . . . they can be useful

to explain the intended meaning of other terms.” 38 Here, the recitals state the

purposes of the Indemnification Agreement:

             WHEREAS, the Charter . . . and Bylaws . . . of the
             Company provide for indemnification by the Company of
             its directors and officers as provided therein, and the
             Indemnitee, at the Company’s request, has agreed to serve
             as a director, officer, or employee of the Company partly
             in reliance on such provision; and

             WHEREAS, to provide the Indemnitee with additional
             contractual assurance of protection against personal
             liability in connection with certain proceedings described
             below, the Company and Indemnitee desire to enter into
             this Agreement; and

38
      Utilisave, LLC v. Miele, 2015 WL 5458960, at *7 (Del. Ch. Sept. 17, 2015) (quoting
      New Castle Cty. v. Crescenzo, 1985 WL 21130, at *3 (Del. Ch. Feb. 11, 1985)).
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 13 of 15

             WHEREAS, Section 145 of the Delaware General
             Corporation Law . . . expressly recognizes that the
             indemnification provisions therein are not exclusive of any
             other rights to which a person seeking indemnification
             may be entitled under the Charter or Bylaws of the
             Company . . . , and this Agreement is being entered into
             pursuant to and in furtherance of the Charter and Bylaws
             of the Company, as permitted by the DGCL and as
             authorized by the Charter and the Bylaws; and

             WHEREAS, in order to induce the Indemnitee to continue
             to serve as a director, officer and/or employee of the
             Company and in consideration of Indemnitee’s so serving,
             the Company desires to indemnify the Indemnitee and to
             make arrangements pursuant to which the Indemnitee may
             be advanced or reimbursed expenses incurred by the
             Indemnitee in certain proceedings described below,
             according to the terms and conditions set forth below. 39

      None of the recitals indicates any contradiction between the Indemnification

Agreement and the Charter or Bylaws. They indicate precisely the opposite. First,

the recitals acknowledge that Creel agreed to serve as a director and officer of the

Company in reliance on the indemnification provisions—not of the Indemnification

Agreement—but of the Charter and the Bylaws. 40 The terms of the Charter and the

Bylaws provide for indemnification of the settlement without Ecolab’s approval.41

39
      Compl. Ex. F, at 1 (emphases added).
40
      Id.
41
      See Compl. Ex. D § 1(a), at 16; id. Ex. E art. V, § 1, at 9.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 14 of 15

      Second, the recitals indicate that the Indemnification Agreement provides

“additional contractual assurance” “against personal liability” beyond those

provided in the Charter and Bylaws. 42 Third, the recitals also acknowledge that

Section 145 allows for multiple sources of indemnification and that the

Indemnification Agreement is “pursuant to and in furtherance of the Charter and

Bylaws.” 43 It is inconsistent with the language in the recitals to suggest that the

Indemnification Agreement limits, alters, or supersedes the Charter or the Bylaws.

If anything, the recitals indicate that the Indemnification Agreement is an expansion

of Creel’s rights under the Charter and the Bylaws.

      The plain language of the Indemnification Agreement does not support

Ecolab’s argument. To the contrary, the plain language indicates no intent to alter,

amend, limit, or supersede the Charter or Bylaws. Sophisticated parties drafted and

entered into the Indemnification Agreement. If the parties had intended to limit the

Charter or Bylaws, they could have and should have done so explicitly. The

Indemnification Agreement does not limit Creel’s right to indemnification under the

42
      Id. Ex. F, at 1.
43
      Id.
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
Page 15 of 15

Charter or Bylaws. Thus, it does not require approval under the indemnification

provisions of the Charter and Bylaws.44

III.   CONCLUSION
       For the foregoing reasons, I DENY Defendant’s Motion for Summary

Judgment Dismissing Count I of the Complaint.

       IT IS SO ORDERED.

                                       Sincerely,

                                       /s/Tamika Montgomery-Reeves

                                       Vice Chancellor

TMR/jp

44
       Because the Charter indemnifies against amounts paid in settlement (without an
       approval requirement) and Creel identifies the Charter as a source of
       indemnification (Compl. ¶ 103.), Ecolab’s second argument, that Creel did not
       obtain approval, is moot.