Citadel Holding Corp. v. Roven
| Decision Date | 19 November 1991 |
| Citation | 603 A.2d 818 |
| Parties | CITADEL HOLDING CORPORATION, a corporation of the State of Delaware, Defendant Below, Appellant/Cross Appellee, v. Alfred ROVEN, Plaintiff Below, Appellee/Cross Appellant. . Submitted: |
| Court | Supreme Court of Delaware |
Appeal from Superior Court. Affirmed in Part. Reversed and Remanded in Part.
William O. LaMotte, III (argued), and Robert J. Valihura, Jr., Morris, Nichols, Arsht & Tunnell, Wilmington, for appellant.
P. Clarkson Collins, Jr. (argued), and Bruce C. Doeg, Morris, James, Hitchens & Williams, Wilmington, for appellee.
Before CHRISTIE, C.J., HORSEY and WALSH, JJ.
This is an appeal from a decision of the Superior Court awarding damages in an action brought by a former director against Citadel Holding corporation ("Citadel") under an indemnification agreement. The court ruled that the director, Alfred Roven ("Roven"), was entitled to reimbursement for sums paid or costs incurred by him to defray litigation expenses in a federal court action brought against him by Citadel. Roven cross-appeals from the Superior Court's denial of prejudgment interest. We affirm the Superior Court's ruling on the merits of the contractual dispute but reverse its upholding of the attorney-client privilege and remand for further proceedings after discovery. We also reverse the trial court's denial of prejudgment interest.
Citadel, a savings and loan holding company, is a Delaware corporation having its principal place of business in Glendale, California. Roven was a director of Citadel from July, 1985 to July, 1988. During most of that time, he beneficially owned 9.8% of Citadel's common stock.
In May of 1987, Citadel and Roven entered into an Indemnity Agreement ("the Agreement"). The stated purpose of the Agreement was to provide Roven with protection greater than already provided him by Citadel's Certificate of Incorporation, Bylaws and insurance. The Agreement begins with recitals describing the intent of the parties as follows:
WHEREAS, the Agent [Roven] is currently serving as a director of the Corporation, and the Corporation wishes the Agent to continue in such capacity. The Agent is willing, under certain circumstances, to continue in such capacity.
WHEREAS, the Agent has indicated that he does not regard the indemnities available under the Corporation's Certificate of Incorporation and Bylaws and available insurance, if any, as adequate to protect him against the risks associated with his service to the Corporation. The Agent may not be willing to continue in office in the absence of the benefits accorded to the Agent under this Agreement.
NOW, THEREFORE, in order to induce the Agent to continue to serve as a director of the Corporation, and in consideration for his continued service, the Corporation hereby agrees to indemnity the Agent as follows:
. . . . .
The body of the Agreement consists of twelve numbered paragraphs, only a few of which are relevant here. Paragraph 1 contains Citadel's general obligation to indemnify Roven. That section provides, in part:
1. The Corporation shall indemnify the Agent against any expense or liability incurred in connection with any threatened, pending or completed action, suit or proceeding, whether civil or criminal, administrative or investigative, to which he is a party or is threatened to be made a party by reason of his service as a director....
This general undertaking to indemnify for "any expense or liability" is limited later in the Agreement, however, by specific exceptions to the obligation. The exception which has pertinence to the present dispute is contained in paragraph 5(e):
5. The Corporation shall not be obligated under this Agreement to make payment in regard to any liability or expense of the Agent:
. . . . .
(e) for an accounting of profits made from the purchase or sale by the Agent of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law; ...
Under Paragraph 7 of the agreement Roven is entitled to require Citadel to advance the costs of defending certain lawsuits. This paragraph was invoked by Roven as the basis for his Superior Court breach of contract action. It states:
7. Costs and expenses (including attorneys' fees) incurred by the Agent in defending or investigating any action, suit, proceeding or investigation shall be paid by the Corporation in advance of the final disposition of such matter, if the Agent shall undertake in writing to repay any such advances in the event that it is ultimately determined that the Agent is not entitled to indemnification under the terms of this Agreement.
Roven's claim for indemnification and reimbursement was prompted by a suit brought by Citadel against him in the United States District Court for the Central District of California ("the federal action"). In that proceeding, which is ongoing, Citadel alleged that Roven violated Section 16(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78p(b) 1 ("Section 16(b)") by purchasing certain options to buy Citadel stock while he was a director. Roven is contesting the claim that his option purchases violated Section 16(b) and contends that the federal action is but one chapter in a continuing fight for control of Citadel between Roven and another director of Citadel, James J. Cotter. See, e.g., Roven v. Cotter, Del.Ch., 547 A.2d 603 (1988).
In support of this latter contention, Roven has advanced certain counterclaims and affirmative defenses in the federal action. These include a charge of illegal corporate control, laches and estoppel. The district judge hearing the federal action, however, concluded in a series of rulings that none of these issues were relevant to a claim under Section 16(b) and has dismissed them.
Nearly two years after the federal action was commenced and following refusal by Citadel to reimburse him for $275,000 in expenses, Roven brought the present suit against Citadel in the Court of Chancery. 2 Roven claimed that his entitlement to reimbursement emanates from both the Agreement and Citadel's Bylaws. He thereafter moved for summary judgment on the contract claim. In granting partial summary judgment the Superior Court ruled that Citadel was required to advance to Roven the costs of defending the federal action. It deferred action on the reasonableness of the amounts sought pending a further hearing.
Before that hearing could be held, however, a discovery dispute arose between the parties concerning the time records maintained by Roven's lawyers in the federal action. Roven resisted Citadel's attempt to discover these documents on the ground they were protected by the attorney-client privilege and the work product doctrine. He argued that records detailing work performed by his attorneys reflect the mental impressions in the ongoing federal action and were therefore protected from discovery.
The Superior Court agreed with Roven's assertion of privilege and ruled that, at that point in the litigation between the parties, Citadel was entitled to discover only the number of hours billed, not the specifics of work performed in those hours. Roven therefore produced copies of the time sheets with work descriptions didacted.
After an evidentiary hearing on the issue of reasonableness of the claimed expenses, the Superior Court ruled that Roven was entitled to an advancement of $928,148.46 for attorneys fees and $58,542.88 for related expenses. Although judgment was entered against Citadel for those amounts, the court disallowed prejudgment or postjudgment interest.
In this Court, Citadel contends the Superior Court erred in construing the advancement provision of the Agreement as applicable to an action under Section 16(b). Even if the advancement provision applies, it argues, it is limited expressly to costs incurred in defending litigation and thus Citadel should have been permitted access to the complete descriptive time sheets kept by Roven's lawyers in the federal action to determine which portion of their efforts have been directed to offensive measures.
Roven has cross-appealed. He maintains that the trial court erred by not awarding him pre-judgment interest 3 and by imposing a reasonableness requirement on the advancement provision.
In this Court, Citadel first argues that the Superior Court misconstrued the pertinent provisions of the Agreement. This contention requires us to review the grant of a motion for summary judgment based on the construction of a contract. Our scope of review is therefore plenary. Gilbert v. El Paso Co., Del.Supr., 575 A.2d 1131 (1990).
Initially, Citadel argues that paragraph 7, the advancement provision of the Agreement, was never intended to cover the federal action in any event. To support this proposition, it points to language of the advancement provision which requires Roven to secure any advance by a written promise to repay the advances "in the event that it is ultimately determined that [Roven] is not entitled to indemnification under the terms of this Agreement." (emphasis added) It further argues that the expense of defending the federal action is not subject to indemnification because the Section 16(b) claim does not arise "by reason of his service as a director" as required by the indemnification provision found in Paragraph 1. Rather, it arises by reason of the fact that he is a director. Furthermore, Citadel argues, a suit under Section 16(b) is specifically excluded from indemnification by Paragraph 5(e) which limits the scope of Paragraph 1. Because Roven has no right to indemnification, the argument goes, he has no right to advances.
It is an elementary canon of contract construction that the intent of the parties must be ascertained from the language of the contract. Myers v. Myers, Del.Supr., 408...
To continue reading
Request your trial
-
Manti Holdings, LLC v. Authentix Acquisition Co.
... ... The Court of Chancery granted the motion to dismiss, holding that the petitioners had agreed to a clear provision requiring that they ... For example, in Sterling v. Mayflower Hotel Corp. , this Court held that Section 102(b)(1) bars only charter provisions ... " (quoting Citadel Hldg. Corp. v. Roven , 603 A.2d 818, 826 n. 10 (Del. 1992) ). 209 See, ... ...
-
Haft v. Dart Group Corp.
... ... case arises out of various disputes among members of the family which controls a parent holding company, Dart Group Corporation "Dart", and several majority owned subsidiaries, including Crown ... Citadel Holding Corp. v. Roven, 603 A.2d 818, 822 (Del. 1992). That is, unless a contrary intent plainly ... ...
-
U.S. v. Rosen
... ... Rite Aid Corp., 2003 WL 22407303 at *2 (Del.Ch.2003) (Chandler, J.) (citing Citadel lding Corp. v. Roven, 603 A.2d 818 (Del.1992)); Christman v. Branvin Realty Advisors, Inc., ... Defendants first cite a case holding that the right to counsel attached pre-indictment when the defendant had ... ...
-
U.S. v. Stein
... ... 25 This holding flowed naturally from the Second Circuit's recent decision in Garcia v ... "In Grimes v. Chrysler Motors Corp., 565 F.2d 841 (2d Cir.1977), moreover, we held that a district court ... costs in criminal case and civil claims filed by the company); Citadel Holding Corp. v. Roven, 603 A.2d 818 (Del.1992) (ordering advancement of ... ...
-
Insurance Recovery for Environmental Liabilities
...2003); Oscar W. Larson Co., 845 F. Supp. 458, 461 (W.D. Mich. 1993), aff’d , 64 F.3d 1010 (6th Cir. 1995); Citadel Holding Corp. v. Roven, 603 A.2d 818, 824 (Del. 1992). 82. Decisions expressing a less expansive view of the recoverability of the cost of prosecuting affirmative claims includ......
-
Table of Cases
...v. W. Am. Ins. Co., 701 N.E.2d 499 (Ill. 1998) 227 Cipollone v. Liggett Group, 505 U.S. 504 (1992) 479 Citadel Holding Corp. v. Roven, 603 A.2d 818 (Del. 1992) 226 Cities Serv. Gas Co. v. Peerless Oil & Gas Co., 340 U.S. 179 (1950) 395 Citizens for a Better Env’t v. Union Oil Co., 83 F.3d 1......
-
Brad B. Erens & Kelly M. Neff, Confidentiality in Chapter 11
...of any expense is being questioned because the time spent on a case is the heart of the issue. Citadel Holding Corp. v. Roven, 603 A.2d 818, 825 (Del. 1992). However, "[t]he mental processes or other work product of the attorneys who billed the time is not subject to disclosure." Id. at 825......
-
A Small Question in the Big Statute: Does Section 402 of Sarbanes-oxley Prohibit Defense Advancements?
...at *1, *5 (Del. Ch. June 18, 2002). 97. Varallo, supra note 44. 98. Reddy, 2002 WL 1358761, at *5 (citing Citadel Holding Corp. v. Roven, 603 A.2d 818, 823 (Del. 1992)). 99. Id. at *5 100. Varallo, supra note 44. 101. DEL. CODE ANN. tit. 8, § 143. 102. Varallo, supra note 44. 103. Havens v.......