Evans v. Avande, Inc., C. A. 2018-0454-LWW

CourtCourt of Chancery of Delaware
Writing for the CourtWILL, VICE CHANCELLOR
PartiesSHAWN EVANS, Plaintiff, v. AVANDE, INC., Defendant.
Docket NumberC. A. 2018-0454-LWW
Decision Date09 June 2022

SHAWN EVANS, Plaintiff,
v.

AVANDE, INC., Defendant.

C. A. No. 2018-0454-LWW

Court of Chancery of Delaware

June 9, 2022


Date Submitted: March 11, 2022

Sean J. Bellew, BELLEW LLC, Wilmington, Delaware; Jenny Li, BAILEY & GLASSER, LLP, Wilmington, Delaware; Counsel for Plaintiff Shawn Evans

Thad J. Bracegirdle, BAYARD, P.A., Wilmington, Delaware; Jerome R. Bowen, BOWEN LAW OFFICES, Las Vegas, Nevada; Counsel for Defendant Avande, Inc.

MEMORANDUM OPINION

WILL, VICE CHANCELLOR

This decision is the latest chapter in an advancement-turned-indemnification action filed in 2018. The court previously held at the summary judgment stage that Shawn Evans, the former CEO of Avande, Inc., could not demonstrate his entitlement to partial indemnification as a matter of law in connection with claims Avande asserted against him. Those underlying claims were for tortious interference and defamation (on which Evans technically prevailed) and for breach of fiduciary duty (on which he was found liable). Because Avande did not cross-move for summary judgment on Evans's entitlement to partial indemnification, this matter proceeded to a trial on a stipulated paper record.

Two primary questions are before the court. One, whether the tortious interference and defamation claims were brought by reason of Evans's former corporate capacity. And two, whether Evans partially succeeded on the fiduciary duty claim.

On the first issue, Avande has met its burden of showing that there is no causal link between Evans's status as a former officer of Avande and the tortious inference and defamation claims. The record in the underlying action indicates that those claims solely concerned Evans's post-termination conduct. Despite Evans's assertion that his use of Avande's confidential information was necessary for his alleged conduct, Avande did not make such an allegation in the plenary action.

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On the second issue, Avande has demonstrated that Evans did not succeed but was found liable. Undeterred by his failure to persuade the court at the summary judgment stage, Evans once again advances a novel theory of proportional indemnification under which Avande would be obligated to indemnify him. That argument is no more convincing now than it was before. It also contravenes the claim-by-claim approach to indemnification consistently followed by Delaware courts.

Accordingly, judgment is entered in favor of Avande.

I. RELEVANT BACKGROUND

Unless otherwise noted, the facts described in this section were proven by a preponderance of the evidence. To the extent that any conflicting evidence was presented, I have weighed it and made findings of fact accordingly.[1]

A. The Plenary Action

Defendant Avande, Inc. is a privately held Delaware corporation that provides medical claims management services to insurance companies and healthcare organizations.[2] Plaintiff Shawn Evans served as the Chief Executive Officer of

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Avande from February 23, 2016 until his termination on February 15, 2018.[3] Evans also served as a director of Avande over that same period.[4] Following Evans's termination, Avande performed an audit through which it discovered various suspect transactions undertaken by Evans while he was serving as CEO.[5]

Avande filed litigation against Evans in this court on March 22, 2018 (the "Plenary Action"). Avande asserted claims for: (1) breach of fiduciary duty based on alleged self-dealing transactions and improper expenditures; (2) tortious interference, defamation, and conversion based on acts that Evans allegedly committed after his termination; and (3) a declaratory judgment that Evans had been removed from his position as CEO.[6] Trial was held in February 2019, at which Avande sought over $5.3 million in damages.[7]

Chancellor Bouchard issued a post-trial Memorandum Opinion on August 13, 2019. The court found that Evans breached his fiduciary duty of loyalty in connection with certain of the transactions Avande challenged at trial.[8] For example, the court found that Evans acted in bad faith by authorizing Avande to make

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payments that he knew violated the law.[9] The court also found that Evans committed self-dealing by causing Avande to enter into business relationships with companies in which he held an ownership interest, such as a payment of more than $200, 000 to DC Risk Solutions, Inc., a company wholly owned by Evans.[10] As to the other challenged transactions, the court found that Avande had not proven that they involved a conflict of interest, were made in bad faith, or constituted waste.[11] The court also held that Avande had abandoned its claims for declaratory relief, tortious interference, defamation, and conversion.[12]

On September 4, 2019, the court entered a Judgment Order implementing the August 13, 2019 Memorandum Opinion.[13] The Judgment Order stated that, with regard to the breach of fiduciary duty claim, "[j]udgment [wa]s entered in favor of Avande, and against Evans" for certain transactions but that "judgment [wa]s . . . entered in Evans's favor and against Avande" for others.[14] The Judgment Order also stated that "judgment [wa]s entered in favor of [Evans], and against Avande," for the declaratory relief, tortious interference, defamation, and conversion claims.[15]

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Evans was found liable for $21, 817.70 in damages, plus pre- and post-judgment interest, and Avande was granted an equitable accounting to determine the entire fairness of payments to DC Risk and quantify additional damages.[16] Based on the results of that accounting, the court subsequently awarded Avande additional damages (jointly and severally against Evans and DC Risk) of $43, 687.77, plus pre-and post-judgment interest.[17]

B. This Advancement and Indemnification Action

On June 12, 2018, Evans sent a letter to Avande demanding advancement for expenses incurred in connection with the Plenary Action. He sent a separate letter eight days later detailing those expenses.[18] The parties were unable to agree on whether Evans was entitled to advancement.[19] Evans commenced this action on June 25, 2018.[20]

On September 28, 2018, the parties agreed to stay the advancement proceeding pending the final disposition of the Plenary Action, which Avande appealed.[21] The stay was lifted on November 12, 2020 after Avande voluntarily

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dismissed its appeal.[22] On November 17, 2020, Evans filed an amended complaint seeking indemnification under 8 Del. C. § 145, Avande's bylaws, and Avande's certificate of incorporation for fees incurred in connection with the Plenary Action and an award of fees-on-fees.[23]

On December 31, 2020, Avande filed a motion for judgment on the pleadings, arguing that Evans's claim for indemnification was not ripe because he had not complied with a notice requirement in Avande's bylaws.[24] On January 5, 2021, Evans filed a motion of summary judgment, contending that he was entitled to indemnification for all expenses he had incurred in the Plenary Action except for the portion of the breach of fiduciary duty count on which he was held liable.[25] After argument, I denied Avande's motion for judgment on the pleadings and took the summary judgment motion under advisement.[26]

On September 23, 2021, I issued a Memorandum Opinion granting in part and denying in part Evans's motion for summary judgment.[27] In that decision, I held that Evans was entitled to indemnification for the expenses incurred in the Plenary

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Action for the declaratory judgment and conversion claims. But could not reach that conclusion as a matter of law with regard to the fiduciary duty, tortious interference, or defamation claims.[28] My decision indicated that, had Avande cross-moved for summary judgment, I might have found in its favor on those issues.[29] Because questions of Evans's entitlement remained unresolved, the matter proceeded to trial. After pre-trial briefing, a trial on a stipulated paper record regarding the remaining entitlement issues was held on March 11, 2022.[30]

II. LEGAL ANALYSIS

Evans seeks indemnification for all fees and expenses he incurred in defending the tortious inference and defamation claims in the Plenary Action. He also seeks indemnification for a portion of the expenses incurred in defending the breach of fiduciary duty claim.

The parties agree that Avande bears the burden of proving that Evans is not entitled to indemnification.[31] "The burden of proof in civil cases in Delaware is

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typically one of preponderance of the evidence."[32] "Proof by a preponderance of the evidence means proof that something is more likely than not."[33]

Evans argues that he is entitled to mandatory indemnification under 8 Del. C. § 145(c). That section provides:

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.[34]

In determining whether an individual succeeded "on the merits or otherwise," "the Court's focus is narrowly upon the outcome of the underlying action."[35] In addition, the covered individual must have been made a party to the underlying proceeding "by reason of the fact that [she] is or was" an officer or director.[36] Avande's bylaws

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and certificate of incorporation provide for indemnification "to the fullest extent permitted by [Delaware] law."[37]

The parties do not dispute that Evans succeeded on the tortious interference and defamation claims in the Plenary Action.[38] His entitlement to indemnification for those claims turns on whether Avande has proven that they were not brought against Evans by reason of the fact that...

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