Sun-Times Media Group, Inc. v. Black

• Citation: 954 A.2d 380
• Decision Date: 30 July 2008
• Docket Number: C.A. No. 3518-VCS.
• Parties: SUN-TIMES MEDIA GROUP, INC., f/k/a Hollinger International Inc., a Delaware corporation, Plaintiff, v. Conrad M. BLACK, John A. Boultbee, Peter Y. Atkinson, and Mark S. Kipnis, Defendants.
• Court: Court of Chancery of Delaware

954 A.2d 380

SUN-TIMES MEDIA GROUP, INC., f/k/a Hollinger International Inc., a Delaware corporation, Plaintiff, v. Conrad M. BLACK, John A. Boultbee, Peter Y. Atkinson, and Mark S. Kipnis, Defendants.

C.A. No. 3518-VCS.

Court of Chancery of Delaware.

Submitted: May 23, 2008.

Decided: July 30, 2008.

David C. McBride, Esquire, William D. Johnston, Esquire, Michael W. McDermott, Esquire, Kristen Salvatore DePalma, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware; Daniel J. Kramer, Esquire, Robert N. Kravitz, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, Attorneys for Plaintiff.

David A. Jenkins, Esquire, Joelle E. Polesky, Esquire, Smith Katzenstein & Furlow LLP, Wilmington, Delaware, Attorneys for Defendant Conrad M. Black.

David S. Eagle, Esquire, Klehr, Harrison, Harvey, Branzburg & Ellers LLP, Wilmington, Delaware, Attorney for Defendant John A. Boultbee.

J. Travis Laster, Esquire, John M. Seaman, Esquire, Abrams & Laster LLP, Wilmington, Delaware, Attorneys for Defendant Peter Y. Atkinson.

Gregory V. Varallo, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware, Attorney for Defendant Mark S. Kipnis.

OPINION

STRINE, Vice Chancellor.

I. Introduction

Plaintiff Sun-Times Mirror Group, formerly known as Hollinger International Inc.,¹ brought this action seeking to foreclose its obligation to provide advancement to defendants Conrad M. Black, John A. Boultbee, Peter Y. Atkinson, and Mark S. Kipnis. The crux of this dispute is the meaning of the words "the final disposition of such action, suit or proceeding" in the Sun-Times bylaws and § 145(e) of the Delaware General Corporation Law (the "DGCL"). Those words describe the point after which the Sun-Times is no longer obliged to continue advancing fees and expenses to the defendants under the advancement provision in its bylaws. The Sun-Times argues that the final disposition of a criminal proceeding occurs at the time of sentencing at the trial court level. The defendants argue that the final disposition of a proceeding² does not occur until the final, non-appealable conclusion to that proceeding. After considering the language of the bylaws and § 145, the parties' course of performance under the Sun-Times bylaws, and the practical and policy considerations related to the definition of that language, I conclude that the final disposition of a proceeding in this context is the final, non-appealable conclusion to that proceeding.

II. Factual Background

A. The Relevant History Behind This Case

The defendants are former officers of Hollinger, a newspaper publishing company. Black is the former CEO and Chairman of the Board of Directors, Boultbee and Atkinson are former Executive Vice Presidents, and Kipnis is a former Vice President, Corporate Counsel, and Secretary. Black was also the ultimate controlling stockholder of Hollinger through a complicated corporate structure. This dispute is part of the fallout from Black's alleged schemes to enrich himself, and to a lesser extent others, including defendants Boultbee and Atkinson, at the expense of Hollinger. Among other alleged tactics of self-enrichment used by the defendants, the misuse of non-competition agreements came to assume great importance in the prosecution of the defendants by the U.S. government. Payments under those non-competition agreements were made to Black and certain other individuals, allegedly in circumstances when it was ridiculous to think that Black and his confreres would compete and allegedly without proper disclosure of the non-competition agreements to the full Hollinger board. Kipnis, as Hollinger's general counsel, played a role in Black's schemes by preparing the paperwork necessary to effect those schemes.

In a prior decision in which the non-competition payments were not center stage, this court found that Black had "breached his fiduciary and contractual duties [to Hollinger] persistently and seriously."³ That decision resulted from the earliest of the many lawsuits that eventually resulted from the same underlying events.

But the defendants were not lucky enough simply to face several civil suits; the government soon got in the game and asserted criminal charges. On August 18, 2005, the defendants in this action were named as the defendants in a criminal proceeding in the U.S. District Court for the District of Northern Illinois. The defendants were charged in a seventeen count indictment with the following offenses: (1) mail and wire fraud, including the deprivation of the intangible right to honest services; (2) money laundering; (3) obstruction of justice; (4) racketeering; and (5) criminal tax violations.⁴ The non-competition payments were a major focus of many of these charges.

After a four-month jury trial in 2007, each of the defendants was convicted on three counts relating to non-competition payments that violated the federal mail fraud statutes.⁵ Kipnis was granted acquittal on one of those counts as the result of a post-trial motion for judgment of acquittal.⁶ In addition to the federal mail fraud convictions, Black alone was convicted of obstruction of justice.⁷ In summary, Black was convicted on four of thirteen counts, Boultbee on three of eleven, Atkinson on three of seven, and Kipnis on two of eleven.⁸ As a result of those convictions, on December 10, 2007, Judge Amy St. Eve sentenced Black to 78 months in prison, Boultbee to 27 months in prison, Atkinson to 24 months in prison, and Kipnis to five years of probation with six months of home detention.⁹

The defendants appealed their convictions to the U.S. Court of Appeals for the Seventh Circuit. After the defendants were sentenced on December 10, 2007 but before the complaint in this action was filed on February 1, 2008, the Sun-Times informed the defendants that it would stop advancing their fees related to their appeals and any post-conviction proceedings at the trial court level. The Sun-Times' desire to stop paying advancement to the defendants was understandable—the Sun-Times had advanced more than $77 million to the defendants during the prior five years, including approximately $60 million related to the criminal proceeding. Despite that desire, after a February 27, 2008 office conference in this action, the Sun-Times agreed to resume advancement of the defendants' legal fees until this court resolved the Sun-Times' motion for partial summary judgment on the issue of whether it was required to continue to advance fees to the defendants after sentencing.

During that time, the defendants' appeals were consolidated, the appellate process moved forward, and post-conviction proceedings took place at the trial court level. During that process, Black, Boultbee, and Atkinson, who were the defendants who had been sentenced to prison time, filed motions for continued release pending appeal. Those motions were denied by the trial court. But on February 28, 2008 the Seventh Circuit granted the motions by Boultbee and Atkinson. The Seventh Circuit noted that all three defendants had "raised a `substantial' question" concerning two of the mail fraud counts and granted the motions of Boultbee and Atkinson because "they might well receive on [the only other count of which they were convicted] alone sentences that are less than the time that would be required for this court to make a final decision."¹⁰

The defendants did not fare so well when the U.S. Court of Appeals for the Seventh Circuit actually issued its decision on the merits of the defendants' appeals. In a June 25, 2008 decision, the Seventh Circuit affirmed the convictions of the defendants on every count of which they were convicted.¹¹ As of now, the defendants are still within the 90 day period during which they may file a petition for certiorari to have the U.S. Supreme Court review the Seventh Circuit's decision.¹²

B. The Contractual Sources Of Advancement

The Sun-Times' Certificate of Incorporation (the "Certificate") provides directors and officers advancement and indemnification "to the fullest extent permitted by applicable law."¹³ The Sun-Times' Bylaws (the "Bylaws") also provide for mandatory advancement of attorneys' fees and expenses to directors and officers upon the receipt of an undertaking. The "Advancement Provision" in the Bylaws is as follows:

Section 4.6. Expenses Payable in Advance. Expenses (including attorneys' fees) incurred by a director or officer in defending or investigating any threatened or pending civil[,] criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article IV if such an undertaking is required by the General Corporation Law of the State of Delaware.¹⁴

Under the Advancement Provision, advanced funds must be repaid to the Sun-Times if it is "ultimately determined" that the director or officer who received those funds is not entitled to be indemnified. The Bylaws condition indemnification on the state of mind of the director or officer and make clear that, among other things, the mere fact of a conviction of any kind does not create a presumption that the director or officer acted with a non-indemnifiable state of mind. The "Indemnification Provision" states:

Section 4.1. Indemnification in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation. Subject to [the section explaining how indemnification shall be authorized], the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of...