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Pontone v. Milso Indus. Corp.

Court of Chancery of Delaware, New Castle

August 22, 2014

SCOTT PONTONE, Plaintiff,
v.
MILSO INDUSTRIES CORPORATION and THE YORK GROUP, INC., Defendants

Submitted April 2, 2014

Page 1024

[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Philip A. Rovner, Esq., Jonathan A. Choa, Esq., POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Valeria Calafiore Healy, Esq., HEALY LLC, New York, New York; Attorneys for Plaintiff.

Brian M. Rostocki, Esq., John C. Cordrey, Esq., REED SMITH LLP, Wilmington, Delaware; Steven Cooper, Esq., Danielle J. Marlow, Esq., REED SMITH LLP, New York, New York; Attorneys for Defendants.

OPINION

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Vice Chancellor, PARSONS.

This is an action by a former officer and director of two Delaware companies for advancement from those companies of the legal fees and expenses he has incurred in underlying litigation between the parties in a federal court in Pennsylvania. Although the Pennsylvania action has been pending since 2010, the complaint only seeks indemnification from January 2013. The

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Pennsylvania litigation at issue in this case is the same underlying litigation at issue in a related case pending before this Court, Harry Pontone v. Milso Industries, et al., Civil Action No. 7615-VCP. The plaintiff in this case, Harry Pontone's son, claims he is entitled to mandatory advancement from both defendants. The defendants have moved to dismiss the plaintiff's claims, however, for lack of standing. The defendants contend the plaintiff has no standing because he has a right to mandatory advancement and indemnification from his new employer or client, which company has paid the plaintiff's legal fees and expenses through at least the end of 2012 and allegedly has continued to pay them to this day. According to the defendants, because the plaintiff has incurred no out-of-pocket expenses, he has no standing to seek advancement from them. Instead, the defendants contend, his new employer and co-indemnitor's only remedy would be to seek contribution from the defendants at the indemnification stage of these proceedings. The plaintiff opposes the motion to dismiss and insists tat he does have standing to pursue his claims for advancement of the fees and expenses he has incurred since January 2013.

For the reasons stated in this Opinion, I grant in part, and deny in part, the defendants' motion to dismiss. Specifically, I grant the motion as to any legal fees and expenses incurred since January 1, 2013 that have been paid by the plaintiff's current employer or client, on the ground that the plaintiff lacks standing to pursue those claims. I deny the motion to dismiss with respect to any fees and expenses incurred since January 1, 2013 that have not been paid by the co-indemnitor. As to those fees and expenses, the plaintiff is entitled to advancement from at least the one defendant that clearly owes a mandatory advancement and indemnification obligation to the plaintiff.

This matter is also before the Court on the plaintiff's co-pending motion for partial summary judgment. That motion requests an order that the plaintiff is entitled to advancement from the defendants under their bylaws. The defendants oppose this motion on several grounds. For the reasons stated herein and consistent with my ruling on the defendants' motion to dismiss, I grant partial summary judgment of advancement against one of the two defendants as to the unpaid legal fees and expenses, and deny it as to the other, because there are disputed issues of fact as to whether the other defendant's advancement obligation is permissive or mandatory. I also deny summary judgment of advancement as to certain of the numerous counterclaims the plaintiff in this action has asserted in the underlying action. For all but one of the affected counterclaims, I rely on the same rulings and reasoning I articulated in the related action before me involving Harry Pontone. The one additional counterclaim for which I denied advancement is for false and misleading advertising.

Lastly, based on my rulings on the two pending motions, I grant the plaintiff advancement as to 75% of his " fees on fees" in prosecuting this action.

I. BACKGROUND[1]

A. The Parties

Plaintiff, Scott Pontone, is an individual residing in New York. Defendants are The York Group Inc. (" York" ), a Delaware corporation wholly owned by Matthews International

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Corporation (" Matthews" ), and Milso Industries Corporation (" New Milso" ), a Delaware corporation wholly owned by York. York and New Milso are active in the death care industry and, in particular, casket manufacturing. From July 2005 through May 2007, Scott Pontone served as a director and Executive Vice President for York and New Milso.

B. Facts

1. Old Milso is Acquired by Matthews

Until mid-2005, Scott Pontone was the Vice President of Old Milso, a New York regional casket company founded by Scott Pontone's grandparents in the 1930s. Old Milso was run by Scott Pontone and his father, Harry Pontone.[2] In early 2005, Matthews, a newcomer to the casket industry, expressed interest in purchasing Old Milso. Among other things, Matthews sought to take advantage of Old Milso's established business presence in New York, where Matthews previously had not been active. The parties reached a deal after Matthews promised that, following the acquisition, Scott and Harry Pontone would remain in leadership positions similar to those they had held at Old Milso.

To implement the transaction, Old Milso entered into an Asset Purchase Agreement (" APA" ) with York and New Milso, a newly formed acquisition subsidiary. The APA reflected, among other things, that Harry and Scott Pontone would become officers and directors of Matthews' new casket business, which was to be run through York and New Milso. Accordingly, Scott and Harry Pontone executed employment agreements with York and New Milso. On July 11, 2005, Scott Pontone became the Executive Vice President of York and New Milso and a director of both companies. Harry Pontone became the President and a director of both companies.

In 2007, Scott and Harry Pontone brought suit to enforce certain of their rights under the employment agreements they entered into with York. The suit resulted in a settlement reached in May 2007. As part of the settlement agreement, Scott Pontone resigned from his positions with York and New Milso. Scott [3] also agreed not to compete with or to solicit the customers of York and New Milso for a period of three years, during which they continued to pay him a salary.

After the expiration of that three-year period, on May 30, 2010, Scott entered into a consulting arrangement with Batesville Casket Company (" Batesville" ). Batesville is a leading manufacturer and distributor of caskets in the United States and competes with York and New Milso in the New York region where Old Milso previously conducted business. Pursuant to the consulting arrangement, Scott was to assist Batesville in marketing its products in the New York metropolitan market and in parts of Texas. Scott formalized his relationship with Batesville through a consulting agreement between Batesville and an entity created by Scott, the Pontone Casket Company (" PCC" ), of which Scott is the sole owner (the " Consulting Agreement" ).[4]

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2. The Pennsylvania Action

On August 16, 2010, York and New Milso, along with their corporate parent Matthews, instituted an action against Scott Pontone and Batesville in the United States District Court for the Western District of Pennsylvania (the " Pennsylvania Action" ),[5] challenging the propriety of their consulting arrangement. On February 28, 2011, the plaintiffs in the Pennsylvania Action (the " Pennsylvania Plaintiffs" ) filed an amended complaint, joining Harry Pontone and PCC as defendants.

The central allegation of the Pennsylvania Plaintiffs is that Scott and the other defendants in the Pennsylvania Action engaged in a wrongful scheme to induce several of the Pennsylvania Plaintiffs' employees and many of their most lucrative customers to move to Batesville. As to Scott, the amended complaint in the Pennsylvania Action alleges that he, in his capacity as Executive Vice President, played a central role in the operations of York and New Milso and had " continuous and unrestricted access to highly proprietary confidential information and trade secrets" concerning their business and customers.[6] The Pennsylvania Plaintiffs allege that Scott misappropriated their confidential information and trade secrets by using them to help Batesville solicit the Pennsylvania Plaintiffs' employees and customers in his role as Batesville's consultant. The Pennsylvania Plaintiffs claim that these actions violated Scott's employment contracts with York and New Milso, which included confidentiality, non-compete, and non-solicitation provisions, as well as the common law.

The Pennsylvania Plaintiffs asserted numerous claims against Scott, including for breach of contract, tortious interference with contract, unfair competition, unjust enrichment, and trademark infringement. In response, Scott asserted a number of ...


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