Date Submitted: January 15, 2015
Barry M. Klayman, Esq., COZEN O'CONNOR, Wilmington, Delaware; Edward S. Mazurek, Esq., THE MAZUREK LAW FIRM, LLC, Philadelphia, Pennsylvania; Attorneys for Plaintiff, Patrick Mooney, M.D.
Gregory B. Williams, Esq., Carl D. Neff, Esq., FOX ROTHSCHILD LLP, Wilmington, Delaware; James A. Matthews, III, Esq., FOX ROTHSCHILD LLP, Philadelphia, Pennsylvania; Attorneys for Defendant, Echo Therapeutics, Inc.
PARSONS, Vice Chancellor.
This request for advancement asks the Court to determine the defendant corporation's advancement obligations with respect to six categories of attorneys' fees. The various proceedings for which the plaintiff seeks advancement arise out of the plaintiff's termination as an officer and employee of the defendant corporation and the contentious litigation that followed. The parties essentially submitted this matter on the papers. For the reasons that follow, the plaintiff is entitled to advancement for some, but not all, of the categories for which he requests it.
I. FACTUAL OVERVIEW
Defendant, Echo Therapeutics, Inc. ("Echo, " or the "Company"), is a Delaware corporation with its principal place of business in Philadelphia, Pennsylvania. Plaintiff, Dr. Patrick Mooney ("Dr. Mooney"), served as Echo's CEO and Chairman of the Board of Directors from sometime in 2007 through August 2013. Non-party Elizabeth Mooney ("Mrs. Mooney") is Dr. Mooney's wife.
On January 17, 2013, Echo responded to an investigation by the Financial Industry Regulatory Authority ("FINRA") into suspicious trading in Echo's stock (generally, the "FINRA Investigation"). This is the first category for which Dr. Mooney requests advancement. In August 2013, the Company commenced an internal investigation into alleged misconduct by Dr. Mooney (generally, the "Internal Investigation"). The parties vigorously dispute the justification for the Internal Investigation. While Echo maintains that the investigation was bona fide, Dr. Mooney dismisses it as a sham. The Internal Investigation is the second advancement category.
On September 27, 2013, Echo terminated Dr. Mooney, purportedly for cause. The Mooneys together filed suit against Echo and others in a case captioned Mooney, et al. v. Grieco, et al.,  in the Philadelphia County Court of Common Pleas (the "Philadelphia Court") on February 4, 2014. In that case, Dr. Mooney brings claims for breach of his employment agreement, violation of various wage and payment statutes, defamation, and loss of consortium (generally, "Mooney I"). The defendants in Mooney I, which include Echo, filed preliminary objections-Pennsylvania's equivalent of a motion to dismiss- on March 24, 2014 as to several of Dr. Mooney's claims (the "Preliminary Objections").Two days later, Echo filed its Answer, New Matter and Counterclaims, which included four counterclaims (the "Original Counterclaims") and ten affirmative defenses. The Original Counterclaims against Dr. Mooney included extensive allegations of misconduct, the content of which fairly can be described as salacious. Dr. Mooney first requested advancement as to the Original Counterclaims on March 31, 2014. The Philadelphia Court denied the defendants' Preliminary Objections on May 19, 2014. The defendants in Mooney I also sought to have the case reassigned to a different case management track, but that request was denied as well.
On June 18, 2014, Echo and the other defendants in Mooney I filed an Amended Answer with New Matter and Counterclaim (the "Amended Answer"). The Amended Answer includes thirteen affirmative defenses and one condensed and revised counterclaim (the "Amended Counterclaim"). Only two of the affirmative defenses are relevant here (the "Amended Affirmative Defenses"). By this amended pleading, which removed the specific factual allegations of misconduct by Dr. Mooney, Echo admittedly sought to moot Dr. Mooney's advancement claims. The Mooney I Original Counterclaims make up the third advancement category, and the Amended Counterclaim and Amended Affirmative Defenses collectively comprise the fourth advancement category.
On July 17, 2014, the Mooneys commenced a second lawsuit in the Philadelphia Court captioned Mooney, et al. v. Burke, et al. ("Mooney II"). In Mooney II, the plaintiffs allege wrongful use of civil proceedings by Echo and others in Mooney I. According to Dr. Mooney, he felt compelled to initiate this second lawsuit to "vindicate his reputation" against the now-abandoned allegations that were made in the Original Counterclaims in Mooney I. Mooney II is the fifth advancement category. Finally, Dr. Mooney seeks to recover fees on fees that are at least commensurate with his success in this action, which is the sixth disputed category.
II. PROCEDURAL HISTORY
Dr. Mooney filed his Verified Complaint in this action (the "Complaint") on August 21, 2014. Echo moved to dismiss and the parties fully briefed that motion by November 3. In a somewhat unusual tactic, Dr. Mooney then moved for a temporary restraining order ("TRO") and preliminary injunction requiring Echo to pay him the advancement he claimed. Echo opposed that motion. On December 24, 2014, the parties stipulated to dismiss the then-pending motions and instead proceeded to "trial." Echo answered the Complaint on December 31, and I entered a new scheduling order on January 5, 2015. After the parties filed their pretrial briefs and a joint stipulation of facts on January 9, I convened a one-day "trial" on January 15. The parties completed their submission of evidence-which consisted solely of additional legal invoices-within minutes, and proceeded immediately to present argument on their respective legal positions. Accordingly, I refer to that proceeding as the "Argument." The net result of this procedural maneuvering is that the parties have briefed the propriety of advancement for the six disputed categories three separate times: on a motion to dismiss, in connection with a TRO, and in their pretrial briefing.
III. STANDARD OF REVIEW
After a trial, the party seeking relief generally has the burden of showing entitlement to that relief by a preponderance of the evidence. Here, the "trial" effectively consisted of oral argument based upon a stipulated record. In that sense, this case procedurally is more analogous to a matter submitted on cross motions for summary judgment.
Pursuant to Court of Chancery Rule 56(h):
Where the parties have filed cross motions for summary judgment and have not presented argument to the Court that there is an issue of fact material to the disposition of either motion, the Court shall deem the motions to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motions.
That essentially is the situation here.
"Summary judgment is granted if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."  "Advancement cases are particularly appropriate for resolution on a paper record, as they principally involve the question of whether claims pled in a complaint against a party . . . trigger a right to advancement under the terms of a corporate instrument." 
I address in turn the six disputed categories of requested advancement: (1) the FINRA Investigation; (2) the Internal Investigation; (3) the Mooney I Original Counterclaims; (4) the Mooney I Amended Counterclaim and Amended Affirmative Defenses; (5) Mooney II; and (6) fees on fees. First, however, I examine Echo's Bylaws, which are the source of Dr. Mooney's advancement rights.
The Bylaws provide for both mandatory advancement and indemnification of the Company's officers and directors:
7.1 Indemnification. 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, including without limitation actions by or in the right of the corporation, a class of its security holders or otherwise, and whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation . . . shall be indemnified by the Corporation against expenses (including attorneys' fees), judgments, fines, excise taxes and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent not prohibited under Delaware law, as amended or modified from time to time, if such person acted in good faith and ...