Augustin Huret v. MondoBrain, Inc. ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
AUGUSTIN HURET, )
)
Plaintiff, )
)
v. ) C.A. No. 2021-0208-SG
)
)
MONDOBRAIN, INC., )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: January 26, 2022
Date Decided: April 27, 2022
Michael W. McDermott and Peter C. McGivney, of BERGER HARRIS LLP,
Wilmington, Delaware, Attorneys for Plaintiff Augustin Huret.
James D. Taylor, Jr., of SAUL EWING ARNSTEIN & LEHR LLP, Wilmington,
Delaware; OF COUNSEL: Joseph L. Manson III, of LAW OFFICES OF JOSEPH L.
MANSON III, Alexandria, Virginia, Attorneys for Defendant MondoBrain, Inc.
GLASSCOCK, Vice Chancellor
This is the latest (the last?) incarnation of a longstanding dispute between
Plaintiff Augustin Huret, and a company he helped found and served as a director,
Defendant MondoBrain, Inc. (“MondoBrain”) and its other principals as well. In
this action, Huret seeks indemnification for one of the underlying litigations.
Currently before me are cross-motions for summary judgment. That underlying
action for which indemnification is sought was settled by the parties, “ending” the
litigation. MondoBrain purports to have been blindsided when the next day, Huret
filed this action for indemnification; it alleges that any indemnification right was
subsumed with all other issues in the settlement. Huret argues that the
indemnification right was not addressed in the settlement, and that in fact, his
indemnification right arose only upon his successful settlement of the action.
I need not resolve this controversy, because Huret is entitled to mandatory
indemnification only to the extent he was successful “on the merits or otherwise” in
the action, as represented by the settlement result achieved by him. Huret points out
that the settlement did not require him to pay any direct damages, and therefore he
was successful in his defense. I find, however, that the plain terms of the settlement
indicate lack of success, and thus he is not entitled to the indemnification he seeks.
The Plaintiff’s motion, accordingly, is denied, and the Defendant’s motion is
granted. My rationale follows.
I. BACKGROUND 1
A. Parties and Relevant Non-Parties
Plaintiff Augustin Huret is a founder and former director of Defendant
MondoBrain. 2 MondoBrain is a Delaware corporation with headquarters in New
York.3 Non-party Noreen Harrington is a MondoBrain stockholder.4
B. Factual Background
In August 2019, Harrington filed a derivative complaint against Huret on
behalf of MondoBrain (the “Derivative Action”). 5 The complaint in the Derivative
Action sought approximately $2 million in damages for alleged breaches of fiduciary
duty and sought to remove Huret from his position as a MondoBrain officer and
director.6 While the Derivative Action was pending, Huret initiated an action in
1
Unless otherwise noted, the information in this opinion is undisputed and taken from the verified
pleadings, affidavits, and other evidence submitted to the Court.
2
Verified Compl. Mandatory Indemnification Pursuant 8 Del. C. § 145(c) ¶ 1 [hereinafter
“Compl.”].
3
Id. ¶ 2.
4
Id. ¶ 5.
5
Id. ¶ 5; see generally Verified Shareholder Derivative Compl., Harrington v. Huret, (Dkt. No. 1),
C.A. No. 2019-0626-SG [hereinafter the “Derivative Compl.”].
6
See Derivative Compl. ¶¶ 112–23. Although the complaint in the Derivative Action does not
specify the amount of damages sought, the Defendant has asserted in its summary judgment
briefing here that it sought approximately $2 million in damages. E.g., Def. MondoBrain, Inc.’s
Opening Br. Supp. Mot. Dismiss, Dkt. No. 4 at 4 [hereinafter “Def.’s OB”]; Def. MondoBrain,
Inc.’s Combined Opp. Pl. Augustin Huret’s Mot. Partial Summ. J. and Reply Br. Further Supp.
Mot. Dismiss, Dkt. No. 9 at 4, 16 [hereinafter “Def.’s AB”]; Def. MondoBrain, Inc.’s Opening
Suppl. Br. Further Supp. Its Mot. Summ. J. and Opp. Pl. Augustin Huret’s Mot. Summ. J., Dkt.
No. 28 at 2–3, 14–15, 17, 19, 25 [hereinafter “Def.’s Suppl. OB”]; Def. MondoBrain, Inc.’s Suppl.
Reply Br. Opp. Pl. Augustin Huret’s Suppl. Opening Br. at 3–4, 15 [hereinafter “Def.’s Suppl.
AB”]. The Defendant asserts that this amount is supported by a preliminary outside audit, which
“found that Huret had improperly overcharged MondoBrain approximately $1.8 million.” Def.’s
2
France seeking approximately $7.9 million in damages from Harrington and three
other employees of MondoBrain, related to purported violations of French privacy
laws (the “French Action”). 7
In September 2019, Huret moved to dismiss Count III of the Derivative
Action, which sought to remove Huret as a MondoBrain officer and director.8
Harrington did not oppose the motion to dismiss, which the Court granted.9
Thereafter, in December 2020, Harrington and Huret began discussing a settlement
of the Derivative Action.10
The parties executed a settlement agreement on December 31, 2020 (the
“Settlement Agreement”). 11 The Settlement Agreement provided that Harrington
would dismiss the Derivative Action against Huret “with prejudice,” and that Huret
would agree to sell all of his MondoBrain shares to stockholders including
Harrington, in exchange for $150,000 and the forgiveness of $36,939 in legal fees
Suppl. OB at 15. The Plaintiff does not appear to dispute that the complaint in the Derivative
Action sought approximately $2 million in damages.
7
Aff. Noreen Harrington Supp. MondoBrain, Inc.’s Opp. Mot. Partial Summ. J. Reply Further
Supp. Mot. Dismiss [hereinafter “Harrington Aff.”], Ex. A, Dkt. No. 9. The complaint in the
French Action sought damages of over 6.6 million Euros and $200,000 in fees. Harrington
Aff. ¶ 4. The Defendant has asserted, and the Plaintiff does not dispute, that this amount converts
to approximately $7.9 million USD. See, e.g., Def.’s AB at 9.
8
See Pls.’ Unopposed Mot. Approve Settlement Dismiss Compl. Prejudice, Harrington v. Huret,
(Dkt. No. 200), C.A. No. 2019-0626-SG ¶ 8.
9
See id.
10
Joint Stip., Dkt. No. 26 ¶ 1 [hereinafter the “Stip.”].
11
Id. ¶ 17; see also Transmittal Decl. Elizabeth Fenton Supp. Mot. Dismiss, Ex. F, Dkt. No. 4
[hereinafter the “Settlement Agreement”].
3
owed by Huret. 12 The Settlement Agreement further provided that “Huret agrees
that this Agreement settles all of the claims in France that were asserted or could be
asserted by Huret or HKT and further warrants that none of these claims may be the
subject of any legal action by Huret, HKT or any of their affiliates against
MondoBrain or any of its Affiliates.” 13 The Settlement Agreement also required
Huret to resign from the MondoBrain board of directors and relinquish any rights to
appoint a MondoBrain director. 14
C. Huret Seeks Indemnification
I approved the Settlement Agreement on March 10, 2021. 15 The next day, on
March 11, 2021, Huret initiated this action, seeking indemnification for his defense
of the Derivative Action, and for purported criminal investigations involving the
same alleged conduct. 16 Huret also seeks fees on fees for his pursuit of
indemnification.17 The Defendant moved to dismiss the Complaint on April 9,
2021. 18 On May 25, 2021, the Plaintiff moved for partial summary judgment on the
12
Settlement Agreement ¶¶ 1–3.
13
Id. ¶ 14.
14
Id. ¶ 4.
15
See Order, Harrington v. Huret, (Dkt. No. 207), C.A. No. 2019-0626-SG.
16
See generally Compl. ¶¶ 24–33.
17
Id. ¶¶ 34–36.
18
See Def.’s OB.
4
issue of his entitlement to indemnification.19 The parties completed briefing on the
motions on July 14, 2021,20 and I held oral argument on October 25, 2021.
At oral argument, I instructed the parties to undertake limited discovery and
agree to a stipulated set of facts regarding the parties’ expectations in drafting the
Settlement Agreement.21 I also dismissed the claim for indemnification of the
potential criminal investigation as unripe, without prejudice, because the Plaintiff’s
counsel represented that no fees had been incurred in connection with any criminal
investigations. 22 The parties submitted a joint stipulation of facts on December 17,
2021, 23 and completed supplemental briefing on January 19, 2022.24 I held oral
argument on the supplemental briefing on January 26, 2022, and I consider the
matter fully submitted as of that date.
19
See Mot. Partial Summ. J. Issue Entitlement Mandatory Indemnification Section 145(c), Dkt.
No. 6; Pl.’s Opening Br. Supp. Partial Summ. J. Issue Entitlement Mandatory Indemnification
Section 145(c) and Pl.’s Answering Br. Opp. Def.’s Mot. Dismiss, Dkt. No. 6 [hereinafter “Pl.’s
OB”].
20
Def.’s AB; Pl.’s Reply Br. Further Supp. Partial Summ. J. Issue Entitlement Mandatory
Indemnification, Dkt. No. 11.
21
Tr. re Oral Arg. and Rulings Ct. Pl.’s Mot. Partial Summ. J. Def.’s Mot. Dismiss, Dkt. No. 18
at 47:2–49:7.
22
Id. at 50:1–10.
23
See generally Stip.
24
See Pl.’s Suppl. Opening Br. Issue “Success on the Merits or Otherwise” Under Delaware Law,
Dkt. No. 27 [hereinafter “Pl.’s Suppl. OB”]; Def.’s Suppl. OB; Pl.’s Suppl. Answering Br. Issue
“Success on the Merits or Otherwise” Under Delaware Law, Dkt. No. 30 [hereinafter “Pl.’s Suppl.
AB”]; Def.’s Suppl. AB.
5
II. ANALYSIS
A. The Plaintiff Is Not Entitled to Indemnification
The Plaintiff asserts that he is entitled under DGCL § 145(c) and
MondoBrain’s certificate of incorporation (the “Charter”) and bylaws to mandatory
indemnification for his legal fees and expenses incurred in the Derivative Action.25
“[I]n the case of a mandatory indemnification provision, the burden rests on the party
from whom indemnification is sought [here, MondoBrain] to prove that
indemnification is not required.” 26
Section 145(c) of the DGCL provides as follows:
To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this section, or in defense of any
claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys’ fees) actually and
reasonably incurred by such person in connection therewith.27
The parties agree that MondoBrain’s certificate of incorporation and bylaws provide
for indemnification rights identical to those in Section 145(c).28 The parties also do
not dispute that the Derivative Action constitutes a covered proceeding.
The parties dispute, however, whether Huret was “successful on the merits or
otherwise” in the Derivative Action within the meaning of Section 145(c) and
25
Compl. ¶¶ 24–33.
26
Stockman v. Heartland Indus. Partners, L.P., 2009 WL 2096213, at *13 (Del. Ch. July 14, 2009).
27
8 Del. C. § 145(c)(1) (emphasis added).
28
Pl.’s OB at 17–18; Def.’s OB at 12.
6
MondoBrain’s Charter and bylaws. As explained below, I conclude that Huret was
not “successful on the merits or otherwise,” and is therefore not entitled to
indemnification under Section 145(c) or MondoBrain’s Charter or bylaws.
“When determining success on the merits, this Court does not look ‘behind
the result.’”29 Instead, “where the outcome of a proceeding signals that the
indemnitee has avoided an adverse result, the indemnitee has succeeded ‘on the
merits or otherwise,’ and further inquiry into the ‘how’ and ‘why’ of the result is
unnecessary.”30 In analyzing success on the merits, I must therefore “examine what
[the Plaintiff] was charged with or formally accused of, and [] compare that with the
result [the Plaintiff] actually achieved.”31
The Plaintiff contends that dismissal of a covered proceeding “with prejudice”
and “without any payment or admission of liability” constitutes success, both “on
the merits” and “otherwise.”32 Therefore, the Plaintiff contends that he was
successful “on the merits” and “otherwise” because the Settlement Agreement
required no settlement payment or admission of liability.33 To review any of the
other concessions contained in the Settlement Agreement, says the Plaintiff, would
29
Hermelin v. K-V Pharm. Co., 54 A.3d 1093, 1107 (Del. Ch. 2012).
30
Id.31
Id. at 1108.
32
Pl.’s Suppl. OB § III.C–D.
33
Id.
7
constitute an impermissible assessment of “how” and “why” the result was
obtained.34 I disagree.
The Court does not “look ‘behind the result’” in a proceeding to determine
“how” or “why” the result was obtained, because that would violate the spirit of
mandatory indemnification and have adverse results for litigants/judicial
efficiency. 35 A contrary policy, taken to its logical conclusion, could require a
hearing that would resemble a merits hearing in miniature form. While the Court is
careful to avoid such extrinsic examinations, that does not prevent me from
examining the settlement itself, as a whole. I must assess the outcomes achieved by
the putative indemnitee to determine whether he “[e]scape[d] from an adverse
judgment or other detriment . . . .” 36 “[O]ther detriments” are not limited, pace the
Plaintiff, merely to payments and admissions of liability. Indeed, in Hermelin, the
Court held that a purported indemnitee was not successful in a matter that sought to
impose a lifetime exclusion from federal healthcare programs, because the outcome
of the proceeding resulted in a twenty-year exclusion from federal health care
34
E.g., Pl.’s Suppl. OB at 18; see also Pl.’s Suppl. AB § IV.
35
Horne v. OptimisCorp, 2017 WL 838814, at *3 (Del. Ch. Mar. 3, 2017) (when considering
“success” for purposes of mandatory indemnification, “it is neither fair nor efficient for the Court
to facilitate prolonged and expensive discovery into the facts of the underlying litigation or to
revisit the reasons for the results achieved there”); Brown v. Rite Aid Corp., 2019 WL 2244738, at
*6 (Del. Ch. May 24, 2019) (looking “strictly at the outcome of the underlying action” “avoids,
where possible, prolonged and expensive discovery into the facts behind a particular dismissal,
settlement, or plea” (quoting Hermelin, 54 A.3d at 1107–08)).
36
Rite Aid, 2019 WL 2244738, at *8 (quoting Waltuch v. Conticommodity Servs., Inc., 88 F.3d 87,
96 (2d Cir. 1996)).
8
programs.37 The Court rejected the indemnitee’s argument that he was successful
because he was did not “make any payment.” 38 Like the Court in Hermelin, I decline
to limit my assessment of the outcomes obtained in the Derivative Action to the
absence of settlement payment or admission of liability. Applying that standard, I
find that the Plaintiff was not successful with respect to any of the counts in the
Derivative Action.
The Plaintiff first contends that he was successful in Count III of the
Derivative Action, which sought to remove him as a director of MondoBrain,
because he obtained a dismissal with prejudice of that count after an unopposed
motion to dismiss.39 But the Settlement Agreement itself required the Plaintiff to
resign as a director of MondoBrain.40 That is, the Plaintiff agreed to the precise
relief sought by Count III. Comparing the relief sought by Count III, removing Huret
from the MondoBrain board of directors, with the outcome achieved, Huret’s
resignation from the MondoBrain board, I find that the Plaintiff failed to achieve
success with respect to Count III. 41
37
54 A.3d at 1109–10.
38
Id. at 1109.
39
Pl.’s Suppl. AB at 20 n.6.
40
See supra note 14 and accompanying text.
41
See Hermelin, 54 A.3d at 1109 (“Comparing the potential outcome Hermelin faced[,]
[]effectively a lifetime exclusion from federal healthcare programs[,] and the actual outcome of
the proceeding[,] []Hermelin’s twenty-year exclusion from federal healthcare programs[,]
Hermelin clearly did not succeed on the merits.”).
9
The Plaintiff next contends that he succeeded in Counts I and II of the
Derivative Action because he obtained, through the Settlement Agreement, the
dismissal with prejudice of those counts “without any fine, judgment or settlement
payment” and “without any assumption or admission of liability by” the Plaintiff.42
Again, comparing the relief sought with the results obtained demonstrates that the
Plaintiff was unsuccessful. Counts I and II of the Derivative Action sought to
recover approximately $2 million in damages. 43 The Settlement Agreement required
the Plaintiff to give up the French Action, in which he sought over $7.9 million in
damages from MondoBrain and Harrington. 44 In other words, the Plaintiff gave up
claims that were worth, according to him, more than the damages sought in
Counts I and II. That concession precludes a finding of success “on the merits” or
“otherwise.”
In short, in the face of a lawsuit seeking approximately $2 million in damages
and to remove the Plaintiff as a MondoBrain director, the Plaintiff agreed to resign
as MondoBrain director and dismiss his own lawsuit seeking approximately
$7.9 million in damages. Because I hold that these concessions preclude a finding
of success in the Derivative Action, I need not consider the Defendant’s alternative
42
Pl.’s Suppl. OB § III.C–D.
43
See supra note 6 and accompanying text.
44
See supra note 7 and accompanying text.
10
argument—that the Plaintiff waived his right to indemnification by agreeing to the
Settlement Agreement.
B. The Plaintiff Is Not Entitled to Fees on Fees
The Plaintiff also seeks, in Court II of this action, fees on fees for prosecuting
his right to indemnification. 45 Because the Plaintiff was unsuccessful in seeking
indemnification for his fees and expenses incurred in the Derivative Action and the
potential criminal investigations, he is not entitled to recover any fees on fees. 46
III. CONCLUSION
The Plaintiff’s motion for summary judgment is DENIED in its entirety, and
the Defendant’s motion for summary judgment is GRANTED in its entirety. The
parties should submit an appropriate form of order.
45
Compl. ¶¶ 34–36.
46
Kaung v. Cole Nat’l Corp., 2005 WL 3462250, at *1 (Del. Ch. Dec. 13, 2005) (indemnitee was
“not entitled to recover any ‘fees on fees’ in relation to his unsuccessful prosecution of this case”).
11