Court Opinion

ID: 5115856
Source: CourtListenerOpinion
Date Created: 2021-10-04 19:04:50.341056+00
Date Added: 2024-06-11T08:21:52.958126
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

                          Date Submitted: September 27, 2021
                            Date Decided: October 4, 2021

    Edward B. Micheletti, Esq.                       Blake Rohrbacher, Esq.
    Jacob J. Fedechko, Esq.                          Andrew L. Milam, Esq.
    SKADDEN, ARPS, SLATE, MEAGHER                    RICHARDS, LAYTON & FINGER, P.A.
    & FLOM LLP                                       One Rodney Square
    One Rodney Square                                920 North King Street
    P.O. Box 636                                     Wilmington, Delaware 19801
    Wilmington, Delaware 19899

                 RE: Brett Lay and Brian Mass v. Ram Telecom International, Inc.,
                     C.A. No. 2021-0631-SG

Dear Counsel:

         This Letter Opinion considers, and denies, the Defendant’s Motion to Stay or

Dismiss and Opposition to Plaintiffs’ Motion for Expedited Proceedings (the

“Motion”).1 On June 9, 2021, the Plaintiffs sent a letter to the Defendant seeking

indemnification and advancement of their fees and expenses incurred in defending

an action the Defendant and others had filed against them in the Superior Court of

California (the “California Action”).2 The Defendant did not respond. 3 Instead, five

1
  Def.’s Mot. Stay or Dismiss and Opp’n Pls.’ Mot. Expedited Proceedings, Dkt. No. 7
[hereinafter the “Motion”].
2
  Verified Compl. for Advancement, Dkt. No. 1 [hereinafter the “Complaint”], Ex. E.
3
  Pls.’ Opp. Def.’s Mot. Stay or Dismiss and Reply in Further Supp. Pls.’ Mot. Expedited
Proceedings, Dkt. No. 15 ¶ 12 [hereinafter the “Opposition”].
days later, on June 14, 2021, the Defendant and the other plaintiffs in the California

Action amended their complaint to add a claim for declaratory relief, asking the

California court to “declare that Lay and Mass are not entitled to indemnification or

advancement.” 4 About a month later, on July 20, 2021, the Plaintiffs initiated this

action, seeking advancement of their fees and costs incurred in the California Action,

as well as fees on fees incurred in this action.5

       On August 2, 2021, the Defendant filed the Motion, seeking a stay or dismissal

of this action in light of the California Action and opposing the Plaintiffs’ Motion

for Expedited Proceedings (the “Motion to Expedite”) in this action.6 On August 11,

2021, the Plaintiffs filed an opposition to the Motion and a reply in further support

of their Motion to Expedite (the “Opposition”). 7 The Defendant filed a letter reply

on August 16, 2021. 8 On September 24, 2021, the Defendant filed a letter enclosing

supplemental authority.9 The Plaintiffs filed a letter response on September 27,

2021, 10 and I considered the matter fully submitted as of that date.

4
  See Compl., Ex. D ¶¶ 526–29.
5
  See Compl. ¶¶ 34–48.
6
  See generally Motion.
7
  See generally Opposition.
8
  Dkt. No. 16.
9
  Dkt. No. 21.
10
   Dkt. No. 25.
                                           2
      The Defendant argues that this action should be stayed in favor of the

supposedly “first-filed” California Action, under the McWane doctrine. 11 Under

McWane, this Court’s “discretion should be exercised freely in favor of the stay

when there is a prior action pending elsewhere, in a court capable of doing prompt

and complete justice, involving the same parties and the same issues.”12

      The Defendant argues that the California Action is a “prior pending action”

under McWane because it was filed more than four months before this action, and

because the amended complaint in the California Action asserting the declaratory

judgment claim concerning advancement was filed over a month before the Plaintiffs

initiated this action. 13 The Defendant cites Johnston v. Caremark RX, Inc.14 for the

proposition that a stay should be issued under McWane “where advancement claims

were already at issue in a prior-filed, pending action.”15

      In Johnston, this Court stayed an advancement action in favor of a first-filed

action in which the same indemnitee had already asserted advancement rights.16 In

contrast, this Court has declined to stay an advancement action where the

11
   See McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281, 283 (Del.
1970).
12
   Id.
13
   Motion ¶ 17.
14
   2000 WL 354381, at *2–5 (Del. Ch. Mar. 28, 2000).
15
   Motion ¶ 18.
16
   Johnston, 2000 WL 354381, at *1, 3.
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advancement right was not sought by the indemnitee in the prior filed action.17 In

Fuisz v. Biovail Technologies, Ltd., for instance, the plaintiffs sought advancement

under Section 145(k) for a Virginia action in which they had already asserted their

indemnification and advancement rights as an affirmative defense, but they “did

nothing to obtain any relief from the Virginia court on the basis of this defense.”18

This Court declined to stay the advancement action, stating,

           Unless the person having such an entitlement first actively
           invokes the jurisdiction of a foreign tribunal and seeks an
           adjudication of that issue from it (or some other compelling
           circumstance amounting to a substantial conflict between the
           two jurisdictions exists), this court will not regard the foreign
           action as “first-filed” for purposes of McWane’s comity-based
           analysis.19

       Here, as in Fuisz, “the [Plaintiffs] did not choose [California] as the forum

and have made no effort to obtain any adjudication from the [California] court of

any of the issues presented” in this action.20 Nor have the Plaintiffs here responded

to the declaratory relief claim in the California Action. 21              Rather, it was the

Defendant in this action who sought a declaratory judgment in the California Action

concerning the Plaintiffs’ advancement and indemnification rights.22

17
   See Fuisz v. Biovail Techs., Ltd., 2000 WL 1277369, at *4 (Del. Ch. Sept. 6, 2000) (denying
stay of advancement action where prior action was not filed by indemnitee).
18
   Id. at *2.
19
   Id. at *1.
20
   See id. at *4.
21
   Opposition ¶ 12; Dkt. No. 16 at 2.
22
   See Compl., Ex. D ¶¶ 526–29.
                                               4
       The reasoning of the Fuisz Court is especially compelling here, where the

Defendant amended the complaint in the California Action to add the declaratory

relief claim only after the Plaintiffs sent an indemnification and advancement

demand. 23 Indeed, under the Defendant’s theory, any plaintiff that receives an

advancement demand from a defendant could circumvent the indemnitee’s right to

a summary advancement proceeding in Delaware under Section 145(k) by simply

amending its complaint to add a declaratory relief claim on the advancement issue

upon receiving the demand.          That is not our law.      Accordingly, because the

California Action is not a “first-filed” action, the McWane doctrine is inapplicable.

       The Defendant also cites Harmon 1999 Descendants’ Trust v. CGH

Investment Management, LLC, in which this Court stayed an advancement action in

favor of a federal action even though the plaintiff had not claimed advancement in

the federal action. 24 Harmon is also inapplicable. In Harmon, this Court reasoned

that the federal action was “in its penultimate phase” and contained the “overlapping

question of whether the [putative indemnitee] is a limited partner,” which was a

“material, factually rife, and disputed issue” in the advancement action. 25 Thus, the

Court held that because “the federal court is likely to resolve this factual issue before

this court could,” “efficiencies could be gained by staying this suit in favor of the

23
   See Opposition ¶ 4.
24
   2021 WL 4270220, at *3 & n.12 (Del. Ch. Sept. 21, 2021).
25
   Id. at *1–2.
                                              5
[federal] [a]ction.”26 In contrast, the Motion here does not identify any “material,

factually rife, and disputed issue” that must be decided in the California Action

before the question of advancement can be resolved here, nor does the Motion

contend that the California Action is “in its penultimate phase.” 27 In short, the

compelling circumstances cited by the Harmon Court are lacking here.

       Accordingly,       because      the   Motion      does     not    present     “exceptional

circumstances” warranting a departure from the rule that “claims under Section

145(k) for advancement of expenses should not be stayed or dismissed in favor of

the prior pending foreign litigation that give rise to them,” 28 I decline to stay this

action in favor of the California Action.

       The Defendant also opposes the Plaintiffs’ Motion to Expedite, although it

does not articulate any basis for that opposition beyond its argument that this action

should be stayed or dismissed. Accordingly, I grant the Motion to Expedite for the

same reasons that I decline to stay this action.

26
   Id. at *2.
27
   See id. at *1–2. In fact, the California Action does not appear to be in an antepenultimate, or
even a preantepenultimate phase. It is in, as the British tend to say, early days.
28
   See Fuisz, 2000 WL 1277369, at *1.
                                                 6
      For the forgoing reasons, the Defendant’s Motion is DENIED and the

Plaintiffs’ Motion to Expedite is GRANTED.

      IT IS SO ORDERED.

                                           Sincerely,

                                           /s/ Sam Glasscock III

                                           Sam Glasscock III

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

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