Court Opinion

ID: 4326315
Source: CourtListenerOpinion
Date Created: 2018-10-31 20:08:55.595126+00
Date Added: 2024-06-11T14:19:39.237898
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, Delaware 19801

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

     Dear Counsel:

               This letter opinion addresses both Defendant’s Motion to Dismiss Count I of

     Plaintiff’s Complaint and Plaintiff’s Motion for Summary Judgment. For the

     reasons stated below, I deny the Motion to Dismiss, and I grant in part and deny in

     part the Motion for Summary Judgment.

     I.        BACKGROUND
               For purposes of the Motion to Dismiss, the facts are drawn from Plaintiff’s

     Verified Amended and Supplemental Complaint for Indemnification (the
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
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Page 2 of 32

“Complaint”) and the documents incorporated by reference therein.1 For purposes

of the Motion for Summary Judgment, the facts are drawn from the pleadings and

the evidence submitted by the parties.2

      A.     Ecovation Before the Merger
      This action arises from Plaintiff’s request for indemnification from Ecolab,

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

and energy technologies.3 The corporation at the center of this dispute is Ecovation,

Inc. (“Ecovation” or the “Company”), a Delaware corporation that was in the

business of providing sustainable wastewater treatment and renewable energy

solutions.4 In 2008, Ecolab acquired Ecovation through a merger.5 Diane C. Creel

1
      On a motion to dismiss under Rule 12(b)(6), the Court may consider a document
      outside the pleadings if “the document is integral to a plaintiff’s claim and
      incorporated into the complaint” or “the document is not being relied upon to prove
      the truth of its contents.” Vanderbilt Income & Growth Assocs., L.L.C. v.
      Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del. 1996) (citing In re Santa Fe
      Pac. Corp. S’holder Litig., 669 A.2d 59, 69-70 (Del. 1995)); see Allen v. Encore
      Energy P’rs, L.P., 72 A.3d 93, 96 n.2 (Del. 2013).
2
      See Ct. Ch. R. 56(c).
3
      Compl. ¶ 7.
4
      Id. Ex. B ¶ 19.
5
      See id. Ex. C.
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was the President, Chief Executive Officer, and Chair of the Board of Directors of

Ecovation from May 2003 until the 2008 merger.6

      When Creel joined Ecovation, it was struggling financially.7 In June 2004,

W. Jerome Frautschi, as trustee of the W. Jerome Frautschi Living Trusts and agent

of the Pleasant T. Rowland Revocable Trusts (together, the “Trusts”),8 caused the

Trusts to extend a $30 million line of credit to the Company; this agreement was

memorialized in the Line of Credit Agreement (the “LOC”). 9 After Ecovation’s

Board of Directors unanimously approved the LOC, Frautschi joined the Board in

May 2004.10 He served in that capacity until he resigned in November 2005.11

6
      Compl. ¶ 10. After Ecolab acquired Ecovation, Creel no longer served as a director
      or officer of Ecovation; she became an employee of Ecolab. Id.
7
      Id. Ex. A ¶ 25.
8
      Compl. Ex. G, at 4 (listing Frautschi as Trustee of the W. Jerome Frautschi Living
      Trust). The parties never explicitly define Frautschi’s relationship to the Pleasant
      T. Rowland Revocable Trust. See, e.g., Def.’s Opening Br. 8 (describing the Trusts
      as “owned and controlled by Mr. Frautschi and his wife”). I presume an agency
      relationship for purposes of this opinion. This presumption has no bearing on my
      analysis or decision.
9
      Compl. Ex. A ¶¶ 24-25.
10
      Id. ¶ 21.
11
      Id. ¶ 37.
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      The $30 million LOC proved insufficient to resolve the Company’s financial

problems.12 Therefore, Creel negotiated with the Trusts over the next three years to

amend the LOC multiple times and increase the Company’s financing to over $60

million.

      B.       The Underlying Proceedings
      Creel’s request for indemnification in this action stems from proceedings in

the New York Supreme Court (the “Ahlers Action”) and in the United States District

Court for the Western District of New York (the “ITV Action”).13 Both underlying

actions involved allegations that Creel provided material nonpublic inside

information to Frautschi and the Trusts regarding Ecolab’s desire to acquire

Ecovation.14

               1.   The Ahlers Action
      In the Ahlers Action, the plaintiffs asserted claims for breach of fiduciary duty,

interested director transactions, breach of the Charter, and unjust enrichment against

Creel, Frautschi, and the Trusts.15           The defendants prevailed on summary

12
      Id. ¶ 45.
13
      Id. ¶ 1.
14
      Id. Ex. A ¶¶ 96-102; id. Ex. B ¶ 328.
15
      Id. Ex. B ¶¶ 391-442.
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judgment.16 The New York Appellate Division, Fourth Department, affirmed the

trial court’s order on June 30, 2017.17 The parties filed no further appeals.18

             2.       The ITV Action
      In 2008, a stockholder of Ecovation, Industrial Technology Ventures, L.P.

(“ITV”), filed an action against Creel, Frautschi, and the Trusts.19 In that action, the

plaintiff asserted claims against Creel for breach of fiduciary duty, tortious

interference with business relationships, securities fraud, common law fraud, and

civil conspiracy.20

      The plaintiff alleged that while Creel and Frautschi were directors of

Ecovation, they, together with the Trusts, schemed to “take advantage of the

Company’s precarious financial positon and looming default” under a provision of

the LOC.21 The plaintiff further alleged that because Creel, in her capacity as

Ecovation’s CEO and President, ignored other sources of investment and because

16
      Id. ¶ 92.
17
      Id.
18
      Id.
19
      Compl. ¶ 22; Def.’s Opp’n Br. 1.
20
      Id. ¶ 24.
21
      Id. Ex. A ¶ 35.
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the Trusts increased the LOC, the Trusts were in a position of significant power to

threaten foreclosure on the LOC.22 The Trusts also owned a substantial amount of

stock and stock warrants in the Company.23 Under the terms of the LOC, the

Company issued warrants to the Trusts to purchase shares of Company stock for

$0.01 per share.24 Through the LOC and the terms of the Trusts’ loans to the

Company, the Trusts increased their ownership of Series A Preferred Stock to over

fifty percent, also increasing their already substantial influence.25 In 2007, allegedly

after receiving material nonpublic information from Creel regarding Ecolab’s

interest in acquiring Ecovation, the Trusts purchased additional Series A Preferred

stock from other investors, including the plaintiff.26 As a consequence of Ecolab’s

acquisition of Ecovation, the Trusts made a substantial profit on the shares they

purchased from the plaintiff.27 The ITV complaint followed.

22
      Id. ¶¶ 59, 61, 70.
23
      Id. ¶¶ 26, 29.
24
      Id. ¶ 64.
25
      Id. ¶ 71.
26
      Id. ¶¶ 102, 106.
27
      Id. ¶ 128.
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      Throughout the ITV Action, Ecolab advanced defense fees and expenses to

Creel, first through its directors’ and officers’ liability policy and later, when that

policy was exhausted, from its own funds.28

             3.        Settlement of the ITV Action
      The parties in the ITV Action began considering settlement in 2015.29 They

attempted mediation but were unsuccessful.30           Nonetheless, they continued

settlement negotiations.31 Counsel for Creel and counsel for Frautschi and the Trusts

estimated that a reasonable settlement of the claims would fall in the range of $3

million to $5 million.32 They communicated this estimate in a memorandum to

Ecolab’s counsel in September 2015.33

      In April 2016, the parties reached a settlement agreement in principle.34 The

total settlement amount was $4.9 million; the parties to the ITV Action apportioned

28
      Compl. ¶ 38; see id. ¶¶ 42-43.
29
      See id. ¶¶ 37, 41.
30
      Id. ¶¶ 41, 45.
31
      Id. ¶ 46.
32
      Id. ¶¶ 39, 48; Glorioso Aff. Ex. 11.
33
      Compl. ¶ 39; Glorioso Aff. Ex. 11.
34
      Compl. ¶ 51.
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$2.94 million to Creel and $1.96 million to the Frautschi and the Trusts (together,

the “Frautschi Parties”).35 As a condition to settlement, the agreement required

Ecolab to fully indemnify Creel for her portion of the settlement.36

      Counsel for Creel and counsel for the Frautschi Parties communicated the

terms of this agreement to Ecolab’s counsel on April 28, 2016.37 Nearly three

months later, on July 19, 2016, Ecolab’s counsel informed Creel and the Frautschi

Parties, through their counsel, that Ecolab would contribute $3 million to the

settlement.38 This contribution would be contingent on releases from Creel and the

Frautschi Parties as to claims for indemnification, an unacceptable result for the

Frautschi Parties.39 As such, the parties did not effectuate the agreement in principle,

and Ecolab did not contribute any money toward settlement.40

      The parties continued settlement discussions. In August 2016, the parties

executed a Settlement Term Sheet that largely reflected their agreement in principle

35
      Id.
36
      Id. ¶ 52.
37
      Id. ¶ 57.
38
      Id. ¶ 58.
39
      Id.
40
      Id.
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from April 2016.41 The Settlement Term Sheet contained the same apportionment:

$2.94 million to be “paid on behalf of Defendant Diane C. Creel,” and $1.96 million

to “be paid by” the Frautschi Defendants.42

      Although Creel, Frautschi, and the Trusts were aware of Ecolab’s position

regarding its contribution, the Settlement Term Sheet contained a condition that

Ecolab agree to pay or be ordered by a court to pay Ms. Creel’s portion of the

settlement.43 This contingency reduced the certainty of settlement, and the district

court placed the proceeding on its trial calendar for January 2018.44

      In October 2016, Ecolab denied Creel’s demand for indemnification.45 The

parties in the ITV Action therefore could not move forward with the Settlement Term

Sheet.46 The parties agreed to modify the terms of the settlement to eliminate the

indemnification contingency.47 To move forward with settlement of the ITV Action,

41
      Id. ¶ 60; id. Ex. G.
42
      Id. Ex G, at 1.
43
      Id. at 1-2; Compl. ¶ 77; see id. ¶ 58.
44
      Id. ¶ 78.
45
      Id. ¶¶ 79-80.
46
      Id. ¶ 81.
47
      Id. ¶ 82.
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the Trusts agreed to advance to Creel her portion of the settlement proceeds. 48 The

Trusts and Creel memorialized this advancement in the written Agreement to

Effectuate    Settlement     Agreement   dated   April   24,   2017   (“Effectuation

Agreement”).49 Under the terms of the Effectuation Agreement, the Trusts advanced

Creel’s portion of the settlement, and Creel agreed to pursue indemnification from

Ecolab.50 If Creel is successful in obtaining indemnification, she must reimburse the

Trusts for any amount she receives in indemnification, up to the amount the Trusts

advanced.51

      To remove the contingency of indemnification from settlement in the ITV

Action, the plaintiff agreed to reduce the settlement amount to $4.65 million, a

difference of $250,000.52 The parties reduced the Trusts’ portions of the settlement

because the Trusts were assuming the risk that Creel may not be successful in her

indemnification claim.53

48
      Id. ¶ 83; id. Ex. H, at 1.
49
      Id. Ex. H.
50
      Id. §§ 1-2.
51
      Id. § 1.
52
      Compl. ¶ 84.
53
      Id. ¶ 85.
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       On April 25, 2017, the parties signed a formal Settlement and Release

Agreement (the “Settlement”).54 Ecolab did not explicitly approve the Settlement.55

Under the terms of the Settlement and the Effectuation Agreement, the Trusts

provided $2.94 million to Creel’s counsel, who in turn transferred that amount to

plaintiff’s counsel.56 The Frautschi Parties also paid their portions of the Settlement

to the plaintiff.57 The district court dismissed the ITV Action on May 1, 2017.58

II.    ANALYSIS OF ECOLAB’S MOTION TO DISMISS
       In this action, Creel seeks indemnification for her portion of the Settlement in

the ITV Action (Count I), the difference between Creel’s defense counsel’s standard

hourly rates and the discounted rate Ecolab actually paid in the ITV and Ahlers

Actions (Count II), and the fees Creel incurred to enforce her indemnification rights

in this action (Count III).59

54
       Id. ¶ 86; id. Ex. I.
55
       See Compl. ¶ 80.
56
       Id. ¶ 87; id. Ex. H § 1; id. Ex. I § 3(d).
57
       Compl. ¶ 87; id. Ex. I § 3(a)-(c).
58
       Compl. ¶ 88; id. Ex. N.
59
       See generally Compl. ¶¶ 101-27.
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      Ecolab filed its Motion to Dismiss Count I of the Complaint on October 13,

2017,60 and an amended motion on November 13, 2017 (the “Motion to Dismiss”).61

Ecolab argues that Creel fails to state a claim under Court of Chancery Rule 12(b)(6)

because Creel did not actually incur her portion of the Settlement when the Trusts

advanced that amount to her.62

      When considering a motion to dismiss for failure to state a claim under Court

of Chancery Rule 12(b)(6), a court must accept all well-pled factual allegations in

the complaint as true, accept even vague allegations in the complaint as well-pled if

they provide the defendant notice of the claim, “draw all reasonable inferences in

favor of the non-moving party,” and deny the motion unless the plaintiff could not

recover “under any reasonably conceivable set of circumstances susceptible of

proof.”63

      A.     Section 145 of the General Corporate Law of Delaware
      This Court has long recognized the dual policies of Section 145:

             (a) [to allow] corporate officials to resist unjustified
             lawsuits, secure in the knowledge that, if vindicated, the

60
      D.I. 58.
61
      D.I. 67.
62
      See generally Def.’s Opening Br. Mot. to Dismiss 17-30.
63
      Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002).
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                 corporation will bear the expense of litigation; and (b) [to
                 encourage] capable women and men to serve as corporate
                 directors and officers, secure in the knowledge that the
                 corporation will absorb the costs of defending their
                 honesty and integrity.64

Additionally, “[Section 145] should be broadly interpreted to further the goals it was

enacted to achieve.”65

       Section 145(a) authorizes Delaware corporations to indemnify directors,

officers, employees, and agents in connection with actions brought against them by

third parties:

                 A corporation shall have power to indemnify any person
                 who was or is a party . . . to any . . . action, suit or
                 proceeding . . . (other than an action by or in the right of
                 the corporation) by reason of the fact that the person is or
                 was a director, officer, employee or agent of the
                 corporation . . . against expenses (including attorneys’
                 fees), judgments, fines and amounts paid in settlement
                 actually and reasonably incurred by the person in
                 connection with such action, suit or proceeding if the
                 person acted in good faith and in a manner the person
                 reasonably believed to be in or not opposed to the best
                 interests of the corporation . . . .66

64
       VonFeldt v. Stifel Fin. Corp., 714 A.2d 79, 84 (Del. 1998).
65
       Stifel Fin. Corp. v. Cochran, 809 A.2d 555, 561 (Del. 2002).
66
       8 Del. C. § 145(a).
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      Stated differently, to obtain indemnification under Section 145(a), the

director, officer, employee, or agent must show that (1) she was a party to a

threatened, pending, or completed action, suit, or proceeding by reason of the fact

that she was a director, officer, employee, or agent of the corporation; (2) the action,

suit, or proceeding was brought neither by nor in the right of the corporation; (3) she

actually and reasonably incurred attorneys’ fees, expenses, judgments, fines, or

amounts paid in settlement in connection with the action, suit, or proceeding; and

(4) she “acted in good faith and in a manner [she] reasonably believed to be in or not

opposed to the best interests of the corporation.”67

      Ecovation’s Amended and Restated Certificate of Incorporation (the

“Charter”) provides Creel with indemnification 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.”68     Ecovation’s Bylaws (the “Bylaws”) provide Creel with

indemnification to the “fullest extent authorized or permitted by the Delaware

67
      Id.
68
      Compl. Ex D, at 16. Ecovation was formerly known as AnAerobics, Inc.; the
      Charter reflects the former name.
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General Corporation Law.”69 In its Motion to Dismiss, Ecolab challenges only that

Creel did not actually “incur” a loss or expense in the Settlement of the ITV Action

because the Trust paid Creel’s portion of the Settlement and because she will never

pay her portion of the Settlement.70

      B.     Creel Has Stated a Reasonably Conceivable Claim That She
             Incurred the Settlement Amount
      This Court has defined “incur” in the advancement context as “to become

liable and subject to” and “[t]o suffer or bring on oneself (a liability or expense).”71

The parties here do not dispute the definition of incur; rather, they dispute whether,

under the facts and circumstances surrounding the Settlement, Creel’s portion of the

Settlement falls within this definition.

69
      Id. Ex. E art. V, § 1, at 9. The Bylaws reflect Ecovation’s former name, AnAerobics,
      Inc.
70
      See generally Def.’s Opening Br. Mot. to Dismiss 17-30.
71
      Pontone v. Milso Indus. Corp., 100 A.3d 1023, 1039-40 (Del. Ch. 2014) (alteration
      in original) (quoting Agere Sys., Inc. v. Worthington Steel Co., 2013 WL 4958220,
      at *9 (Del. Super. Sept. 12, 2013), aff’d, 89 A.3d 478 (Del. 2014); Ameristar
      Casinos, Inc. v. Resorts Int’l Hldgs., LLC, 2010 WL 1875631, at *9 (Del. Ch. May
      11, 2010)).
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      The Company points to Levy v. HLI Operating Co.72 and Pontone v. Milso

Industries Corp.73 to argue that Creel did not incur any expense because the Trusts

paid the expense as the Effectuation Agreement legally required the Trusts to do.

      In Levy, the Court held that parties who had been fully reimbursed for certain

expenses by one indemnitor lacked standing to pursue indemnification for the same

expenses from a different indemnitor.74      HLI Operating Company, Inc. (“Old

Hayes”) issued restatements of its financial results.75 Thereafter, stockholders sued

six former directors of Old Hayes in multiple securities lawsuits.76 To settle certain

of those lawsuits, the former directors agreed to pay $1.2 million each.77 They then

requested indemnification from Old Hayes for those payments under the

indemnification provision of Old Hayes’s bylaws and various indemnification

72
      924 A.2d 210 (Del. Ch. 2007).
73
      100 A.3d 1023 (Del. Ch. 2014).
74
      924 A.2d at 224.
75
      Id. at 214.
76
      Id.
77
      See id.
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agreements.78 When Old Hayes rejected the directors’ request, the former directors

filed suit.79

       During the indemnification litigation, discovery documents revealed that JLL

Fund, a major stockholder of Old Hayes that had appointed four of the plaintiff

directors (the “JLL Representatives”), paid the $1.2 million settlement for each of

the JLL Representatives.80 JLL Fund made these payments pursuant to contractual

indemnification obligations it owed the JLL Representatives.81             Using this

information, Old Hayes argued that the JLL Representatives suffered no injury and

lacked standing to bring their indemnification claim.82 On that argument, Old Hayes

moved for summary judgment.83          The Court granted summary judgment and

explained its reasoning as follows:

                When a purported indemnitee has all of his indemnifiable
                expenses paid in full and cannot show an out-of-pocket
                loss, he has no claim for indemnification under section
                145. The relevant provisions of that statute empower a

78
       Id. at 214-15.
79
       Id. at 216.
80
       Id. at 216-17.
81
       Id. at 217.
82
       Id. at 217-18.
83
       Id. at 217.
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             corporation to provide indemnification of only those
             amounts “actually . . . incurred by the person . . . .” This
             language is best understood as a statutory embodiment of
             the common law of indemnification, which generally
             recognizes that a party who “‘has not and will not sustain
             any actual out-of-pocket loss’ as the result of a claim
             raised against it has no indemnification claim . . . .”
             Therefore, under this reading of section 145, once a co-
             indemnitor fully reimburses its indemnitee for
             indemnifiable liabilities, the indemnitee lacks standing to
             assert an indemnification claim against the other
             indemnitor in the indemnitee’s own right.84

      The Court further held that JLL Fund was the real party-in-interest because it

fully satisfied its obligations to its indemnitees.85 As such, JLL Fund could sue the

co-indemnitor on a theory of contribution.86

      In Pontone, the Court held that because the plaintiff, a former officer and

director, received advancement from a competitor under a separate indemnification

agreement, he lacked standing to pursue advancement for expenses already paid by

the competitor.87   The plaintiff in Pontone had resigned from his position as

84
      Id. at 222-23 (omissions in original) (quoting 8 Del. C. §§ 145(a)-(c); Perno v. For-
      Med Med. Gp., P.C., 673 N.Y.S.2d 849, 851 (Sup. Ct. 1998)).
85
      Id. at 224.
86
      Id.
87
      100 A.3d 1023 at 1045.
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executive vice president and director of two corporations.88          As part of his

resignation, he agreed not to compete with or solicit customers from the corporations

for three years.89 At the end of the three-year period, the plaintiff became a

consultant for a competitor corporation.90      The corporations brought litigation

against the plaintiff challenging the propriety of the plaintiff’s consulting agreement

with the competitor.91

      The plaintiff executed a loan agreement with the competitor.92 Under that

agreement, the competitor agreed to advance the plaintiff’s legal fees and expenses

in the underlying proceeding and in the advancement proceeding against the

corporations.93 The terms of the loan agreement required the plaintiff to repay the

advanced expenses if he recovered them from the corporations.94 The terms also

88
      Id. at 1029.
89
      Id.
90
      Id.
91
      Id. at 1030.
92
      Id. at 1032.
93
      Id.
94
      Id. at 1033-34.
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forgave all advanced expenses if the plaintiff was unsuccessful in his advancement

proceeding against the corporations.95

      The loan agreement, which the plaintiff and competitor entered into after the

commencement of litigation, also referenced the indemnification terms of the

consulting agreement, which they entered into before any litigation.96           The

consulting agreement explicitly indemnified the plaintiff against third-party claims,

expenses, and costs arising out of the consulting agreement.97

      The Court agreed with the corporations that the loan and consulting

agreements provided rights of mandatory advancement and indemnification from

the competitor for expenses incurred in the underlying proceeding.98 Thus, the

plaintiff lacked standing to pursue advancement from the corporation for expenses

already paid.99

      Ecolab argues that the Effectuation Agreement between Creel and the Trusts

is similar to the indemnification agreements in Levy and Pontone and that the

95
      Id. at 1034.
96
      Id. at 1029, 1032-34.
97
      Id. at 1033.
98
      Id. at 1037-38.
99
      Id. at 1059.
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payment by the Trusts on behalf of Creel under the terms of the Effectuation

Agreement is similar to the indemnification and advancement payments made on

behalf of the plaintiffs in Levy and Pontone because (1) the Effectuation

Agreement’s provisions regarding reimbursement are similar to those of common

indemnification agreement and (2) Creel is not actually responsible for her portion

of the Settlement.100

      Creel asserts that the Effectuation Agreement is not an indemnification

agreement. First, the indemnification agreements in Levy and Pontone explicitly and

unambiguously provided indemnification rights.101 By comparison, a cursory review

of the language of the Effectuation Agreement reveals no explicit or unambiguous

language regarding indemnification.102 To the contrary, the Effectuation Agreement

states the purpose of the agreement is to “complete settlement of the ITV Action,”

100
      Def.’s Opening Br. Mot. to Dismiss 19-26.
101
      Levy, 924 A.2d at 216 (“[U]nder the relevant provision of JLL Fund's limited
      partnership agreement, each of the JLL Representatives enjoyed broad
      indemnification rights for actions taken on behalf of the partnership.”); Pontone,
      100 A.3d 1023, at 1033.
102
      See Compl. Ex. H.
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and the agreement requires that Creel “reimburse the Trusts” upon the successful

conclusion of Creel’s indemnification claim against Ecolab.103

      Second, the context in which Creel’s counsel and the Trusts’ counsel drafted

the Effectuation Agreement is very different from the contexts of Levy and Pontone.

For example, in Pontone, the indemnification agreement was part of a larger

agreement, the consulting agreement.104 Also, in both Levy and Pontone, the co-

indemnitors entered into the indemnification agreements before the litigation

commenced, and the co-indemnitors, thus, had pre-existing obligations to their

indemnitees.105 Here, the Effectuation Agreement is limited in scope to the payment

and potential reimbursement of the Settlement, and Creel and the Trusts entered into

the agreement to settle the then-extant litigation.106 The Trusts had no pre-existing

obligation to Creel to advance her portion of the Settlement.

103
      Id. at 1.
104
      Pontone, 100 A.3d at 1033.
105
      Compare id. at 1029 (consulting agreement dated May 30, 2010), with id. at 1032
      (advancement proceeding commenced August 26, 2013); compare Levy, 924 A.2d
      at 216-17 (indemnification rights established under limited partnership agreement
      of JLL Fund), with id. at 217 (payment of already-existing indemnification
      obligations).
106
      See Compl. Ex. H, at 1.
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October 31, 2018
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      Third and finally, counsel for Creel submitted to the Court that they drafted

the agreement to ensure that the agreement did not adversely affect Creel’s

indemnification rights and that the agreement only facilitated settlement of the ITV

Action when Ecolab shirked its advancement obligation by refusing to advance

payment of Creel’s portion of the Settlement.107

      Creel points to DeLucca v. KKAT Management, L.L.C.108 and Schoon v. Troy

Corp.109 to respond that she did incur the Settlement expense because the Trusts

acted as volunteers and because she is obligated to repay them in the event she is

successful in this indemnification action. This line of Delaware cases suggests that

this Court will not allow the purported indemnitor to shirk its obligations because of

the efforts of a volunteer. In DeLucca, the Court refused to allow the company to

stall payment when the person owed advancement rights “find[s] an affluent aunt,

best friend, or other third party to front her defense costs” because this creates a

“perverse incentive” for companies to refuse to provide advancement.110 Similarly

107
      Oral Arg. Tr. 50:1-11.
108
      2006 WL 224058 (Del. Ch. Jan. 23, 2006).
109
      948 A.2d 1157 (Del. Ch. 2008), superseded on other grounds by statute, 77 Del.
      Laws ch. 14, § 3 (2009).
110
      DeLucca, 2006 WL 224058, at *9.
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October 31, 2018
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in Schoon, which then-Vice Chancellor Lamb decided only ten months after issuing

his ruling in Levy, the Court echoed the holding of DeLucca and refused to provide

a “perverse incentive” to companies when a third party “voluntarily under[takes] to

[advance] fees and expenses without obligation.”111

      Defendant argues, and I acknowledge, that DeLucca and Schoon arose in the

advancement context.112 Defendant, however, does not provide any justification

why Delaware policy should not prevent a corporation from shirking its

indemnification obligation when a third party advances payment without a pre-

existing obligation, when that same policy prevents corporations from shirking their

advancement obligations.

      Thus, while I do not resolve for purposes of this motion whether the

Effectuation Agreement is, or is not, an indemnification agreement, I rule that Creel

has stated a reasonably conceivable claim that the Effectuation Agreement is not an

indemnification agreement, which would make the teachings of Levy and Pontone

inapplicable here. I also do not decide whether the holdings of DeLucca and Schoon

111
      Schoon, 948 A.2d at 1175.
112
      Def.’s Reply Br. Mot. to Dismiss 16.
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October 31, 2018
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apply at this point. I only point out the alternative role the Trusts may have acted in,

if they were not co-indemnitors.

III.   ANALYSIS OF CREEL’S MOTION FOR SUMMARY JUDGMENT
       Creel seeks summary judgment on all counts of her Complaint. She seeks

indemnification for her portion of the Settlement, indemnification for her attorneys’

fees at her counsel’s standard hourly rates, and fees-on-fees for this action to enforce

her indemnification rights.113 Additionally, Creel seeks pre-judgment interest on

these amounts.114

       In its opposition to Creel’s motion, Ecolab argues that Creel is not entitled to

indemnification because (1) Creel did not incur her portion of the Settlement, as

argued in the Motion to Dismiss, (2) Creel did not obtain the required approval of

the Settlement from Ecolab, and (3) the Settlement allocation was not reasonable.115

       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

113
       See generally Compl. ¶¶ 101-27.
114
       Id. at 35-36.
115
       Def.’s Opp’n Br. Mot. Summ. J. 30-52.
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judgment as a matter of law.”116         The movant bears the initial burden of

demonstrating that there is no question of material fact.117 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.”118 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.119 Even so, the nonmoving party may not rely on allegations or denials in the

pleadings to create a material factual dispute.120

      B.     Indemnification for Creel’s Portion of the Settlement
      As I explained above,121 Ecolab’s argument that Creel did not incur any loss

or expense associated with the Settlement requires this Court to interpret the

116
      Twin Bridges Ltd. P’ship v. Draper, 2007 WL 2744609, at *8 (Del. Ch. Sept. 14,
      2007) (citing Ct. Ch. R. 56(c)).
117
      Deloitte LLP v. Flanagan, 2009 WL 5200657, at *3 (Del. Ch. Dec. 29, 2009).
118
      Id. (citing Watson v. Taylor, 829 A.2d 936 (TABLE), 2003 WL 21810822, at *2
      (Del. Aug. 4, 2003)).
119
      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).
120
      Ct. Ch. R. 56(e).
121
      See Section II.B above.
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Effectuation Agreement and determine whether it is, or is not, an indemnification

agreement.    Both parties provide objectively reasonable interpretations of the

Effectuation Agreement. Ecolab argues that the Effectuation Agreement is an

indemnification agreement because it obligated the Trusts to pay Creel’s portion of

the Settlement and does not obligate Creel to repay the Trusts if she is unsuccessful

in her indemnification claim.122 This interpretation stresses characteristics that are

present in traditional indemnification agreements. Creel, on the other hand, asserts

that the Effectuation Agreement is not an indemnification agreement because the

Trusts had no pre-existing obligation to indemnify Creel and because Creel is

required to repay the Trusts if she is successful in this indemnification action; the

agreement simply allowed the parties to complete settlement of the ITV Action.

Creel’s interpretation highlights the Trusts’ voluntary role.

      Faced with two reasonable interpretations, I must examine the intent of the

parties when they entered into the agreement. Creel and Ecolab have submitted

exhibits to support, or oppose, this motion for summary judgment. None of these

exhibits, however, allow me to deduce the intent of Creel and the Trusts when

creating the Effectuation Agreement. Without more factual information regarding

122
      Def.’s Opening Br. Mot. to Dismiss 27-28.
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C.A. No. 12917-VCMR
October 31, 2018
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the intent of Creel and the Trusts, I cannot appropriately interpret the Effectuation

Agreement.123 I, therefore, deny summary judgment as to indemnification for

Creel’s portion of the Settlement.

      C.     Indemnification for Creel’s Attorneys’ Fees at Standard Hourly
             Rates
      Ecolab provided Creel with advancement during the ITV and Ahlers Actions;

however, Ecolab demanded a discount on the attorneys’ fees of approximately nine

percent off the standard 2015 rate, and Ecolab refused to permit any annual rate

increases.124 Ecolab rejected annual rate increases based on its policy with its own

outside counsel to hold hourly billing rates level during the pendency of a matter.125

Ecolab based the discount on Creel’s counsel’s decision to offer a discount to the

directors’ and officers’ liability insurer that originally paid the fees. Creel’s counsel

agreed to submit invoices at the discounted rate without annual rate increases but

123
      This factual information will illuminate the legal issue surrounding the Effectuation
      Agreement. In re Dairy Mart Convenience Stores, Inc. Deriv. Litig., 1999 WL
      350473, at *11 (Del. Ch. May 24, 1999) (“[T]his Court has the discretion to deny
      summary judgment if it decides that a more thorough development of the record
      would clarify the law or its application.” (citing Alexander Indus., Inc. v. Hill, 211
      A.2d 917, 918-19 (Del. 1965); Ebersole v. Lownegrub, 180 A.2d 467, 468-69 (Del.
      1962))).
124
      Grant Aff. Ex. 26, at DC0000916.
125
      Id. at DC0000914.
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reserved its right to seek recovery of the higher rates.126 Defendant does not dispute

these facts.127 Creel now seeks indemnification for her counsel’s standard hourly

rates, without any discount and with annual rate increases, and prejudgment interest

on those additional attorneys’ fees.

      Section 145(a) requires that the indemnitee’s attorneys’ fees be reasonable.128

“A party’s expenses are reasonable if they were ‘actually paid or incurred[,] . . .

were . . . thought prudent and appropriate in the good faith professional judgment of

competent counsel[,] and were charge[d] . . . at rates, or on a basis, charged to others

for the same or comparable services under comparable circumstances.’”129

             Advancement is a contractual right governed by the terms
             of the operative agreement. When a company has
             provided a covered person with a mandatory advancement
             right conditioned only on an undertaking to pay, the
             company “does not have the right to impose any terms or
             conditions on . . . advancement other than an undertaking
             to repay.” . . . [The company] cannot now build in other
             obligations. . . . [The company] could have built

126
      Grant Aff. Ex. 3, at 35 (Ecolab’s response to RFA No. 51).
127
      See Def.’s Opp’n Br. Mot. Summ. J. 53-56.
128
      8 Del. C. § 145(a) (limiting indemnification to “expenses (including attorneys’
      fees), judgments, fines and amounts paid in settlement actually and reasonably
      incurred”).
129
      White v. Curo Tex. Hldgs., LLC, 2017 WL 1369332, at *5 (Del. Ch. Feb. 21, 2017)
      (alterations and omissions in original) (quoting Delphi Easter P’rs Ltd. P’ship v.
      Spectacular P’rs, Inc., 1993 WL 328079, at *9 (Del Ch. Aug. 6, 1993)).
Creel v. Ecolab, Inc.
C.A. No. 12917-VCMR
October 31, 2018
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             conditions and limitations into the advancement right . . . .
             What [the company] cannot do now is retrospectively
             revise the advancement right to insert conditions and
             limitation that are not part of the contract.130

      Ecolab does not assert that Creel’s counsel’s standard rates for attorneys’ fees

are unreasonable.131    Instead, it argues that when a third party is paying an

indemnitee’s attorneys’ fees, the third party must be allowed to determine the

appropriateness of the billing rate.132 While parties may agree to such a third-party

determination, Delaware law does not mandate it.

      The advancement provisions of Ecolab’s Charter and Bylaws required Ecolab

to pay Creel’s attorneys’ fees.133 These provisions fail to state any conditions on

attorneys’ fees.134 If Ecolab desired to pay the same rates as the policy insurer

without any annual increases, then it should have included these conditions in its

130
      White, 2017 WL 1369332, at *7-8 (first omission in original) (quoting Blankenship
      v. Alpha Appalachia Hldgs., Inc., 2015 WL 3408255, at *26 (Del. Ch. May 20,
      2015)).
131
      See Def.’s Opp’n Br. Mot. Summ. J. 53-56.
132
      Id. at 55.
133
      Compl. Ex. D, at 17; id. Ex. E art. V, § 3.
134
      See Compl. Ex. D, at 17; id. Ex. E art. V, § 3.
Creel v. Ecolab, Inc.
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Charter, Bylaws, and Indemnification Agreement. It did not, and therefore, it cannot

impose these conditions after the fact.135

      For the foregoing reasons, I grant Creel’s Motion for Summary Judgment as

to additional attorneys’ fees at counsel’s standard hourly rates. I also award

prejudgment interest for the additional attorneys’ fees. Prejudgment interest accrues

at the legal rate set forth in 6 Del. C. § 2301(a) and is compounded quarterly.136

      D.     Fees-on-Fees
      Indemnitees may recover expenses incurred in prosecuting an indemnification

suit, or fees-on-fees, when they are awarded indemnification.137 Because the largest

amount at issue, Creel’s portion of the Settlement, remains unresolved, I reserve

judgment at this time.

IV.   CONCLUSION
      For the foregoing reasons, I determine that Plaintiff has stated a reasonably

conceivable claim and, therefore, DENY Defendant’s Motion to Dismiss. I GRANT

135
      White, 2017 WL 1369332, at *8 (“[The Company] also could have built conditions
      and limitations into the advancement right . . . . What [it] cannot do now is
      retrospectively revise the advancement right to insert conditions and limitations that
      are not part of the contract.”).
136
      Underbrink v. Warrior Energy Servs. Corp., 2008 WL 2262316, at *19 (Del. Ch.
      May 30, 2008).
137
      See Stifel Fin. Corp. v. Cochran, 809 A.2d 555, 561 (Del. 2002).
Creel v. Ecolab, Inc.
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Page 32 of 32

in part and DENY in part Plaintiff’s Motion for Summary Judgment. The nature of

the Effectuation Agreement, whether it is, or is not, an indemnification agreement,

the question of whether Creel “actually incurred” her portion of the Settlement, and

a determination as to Creel’s claim for fees-on-fees remain open issues for trial.138

      IT IS SO ORDERED.

                                         Sincerely,

                                         /s/Tamika Montgomery-Reeves

                                         Vice Chancellor

TMR/jp

138
      I address Ecolab’s argument that Creel did not obtain approval of the Settlement in
      a separate letter opinion issued today. I do not address Ecolab’s reasonableness
      argument as it is contingent on a showing that Creel did not incur her portion of the
      Settlement.