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Computer Sciences Corp. v. Pulier

Court of Chancery of Delaware

May 21, 2019

Computer Sciences Corporation
v.
Eric Pulier, et al.

          Date Submitted: March 5, 2019

          Peter J. Walsh, Jr., Esquire Jacob R. Kirkham, Esquire Jay G. Stirling, Esquire Potter Anderson & Corroon LLP

          Martin S. Lessner, Esquire Elisabeth S. Bradley, Esquire Daniel M. Kirshenbaum, Esquire Young Conaway Stargatt & Taylor, LLP

         Dear Counsel:

         This letter constitutes the court's decision on the motion of Computer Sciences Corporation ("CSC") for partial summary judgment on Count IX of its Verified Second Amended Complaint. For the reasons explained below, the motion will be denied.

         I. Background[1]

         CSC is a publicly held Nevada corporation that provides information technology and professional services. In 2013, CSC acquired ServiceMesh, Inc. for over $260 million under the terms of an Equity Purchase Agreement, dated as of October 29, 2013 (the "EPA").[2] The transaction closed on November 15, 2013.[3]

         After receiving an initial cash payment, the former equityholders of ServiceMesh received an earnout payment of approximately $98 million based on revenue generated by ServiceMesh during a "measurement period" that ran from January 1, 2013 through January 31, 2014.[4] Relevant to the pending motion, the equityholders agreed in Section 10.1 of the EPA to indemnify and hold CSC and ServiceMesh harmless, severally and not jointly, for certain categories of losses.

         On May 12, 2015, CSC filed this action against Eric Pulier, the founder and former Chief Executive Officer of ServiceMesh, and Shareholder Representative Services LLC ("SRS"), in its capacity as the exclusive agent and attorney-in-fact for the former equityholders of ServiceMesh.[5] As the court explained in deciding a previous motion in this case, the gravamen of the Second Amended Complaint is that Pulier, acting on behalf of ServiceMesh, entered into a secret "side agreement" with executives at Commonwealth Bank of Australia Limited that allegedly involved paying them bribes to enter into contracts with ServiceMesh in order to artificially inflate ServiceMesh's revenue during the measurement period and trigger the earnout payment.[6] According to CSC, no earnout payment would have been due but for these actions.[7]

         In August 2015, Pulier demanded that CSC and/or ServiceMesh advance the fees and expenses he had incurred in defending this action.[8] By letter dated September 2015, CSC notified SRS of Pulier's advancement demand and explained that if CSC was required to provide advancement to Pulier, the former equityholders may be required to indemnify CSC under several subsections of Section 10.1 of the EPA.[9]

         In February 2016, Pulier filed a separate action (C.A. No. 12005-CB) seeking advancement from CSC and ServiceMesh for expenses he had incurred and would incur in the future in defense of this action.[10] On May 12, 2016, the court granted in part and denied in part Pulier's motion for summary judgment on his advancement claims. In brief, the court found that Pulier was entitled to advancement from ServiceMesh (but not CSC) arising from his position as an officer of ServiceMesh before the closing for certain (but not all) of the claims in this action under (i) ServiceMesh's bylaws and (ii) an indemnification agreement Pulier had entered into with ServiceMesh in November 2011.[11]

         In February 2017, Pulier filed a second action (C.A. No. 2017-0081-CB) seeking advancement from ServiceMesh, this time to cover "the expenses he has incurred and continues to incur to defend against investigations instituted by the United States and Australian Governments."[12] On August 7, 2017, the court granted Pulier's motion for judgment on the pleadings, finding that the criminal investigations relate to "the same earnout bribery scheme that is the subject of CSC's allegations in the Underlying Action [C.A. No. 11011-CB], and that puts Pulier's conduct as an officer of ServiceMesh squarely at issue."[13]

         From July 20, 2017 until January 30, 2019, this action was stayed at the request of the United States Government during the pendency of a federal criminal proceeding against Pulier, which ultimately was dropped. On February 7, 2019, after the stay was lifted, CSC filed its motion for partial summary judgment on Count IX of its Second Amended Complaint, seeking to recover a portion of the amount it had advanced to Pulier on behalf of ServiceMesh under the advancement orders entered in C.A. Nos. 12005-CB and 2017-0081-AGB. According to CSC, that amount exceeds $18 million.[14]

         II. Analysis

         Under Court of Chancery Rule 56(c), summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, 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."[15]"[T]he court must view the evidence in the light most favorable to the non-moving party."[16] "When interpreting a contract, the role of a court is to effectuate the parties' intent. In doing so, [the court is] constrained by a combination of the parties' words and the plain meaning of those words where no special meaning is intended."[17] Additionally, as our Supreme Court has said, "indemnity provisions are to be construed strictly rather than expansively" under Delaware law.[18]

         Count IX of the Second Amended Complaint seeks a declaration determining the validity and amount of CSC's indemnification claims against SRS and certain former equityholders of ServiceMesh.[19] CSC seeks partial summary judgment on Count IX, contending that it is entitled to indemnification as a matter of law for a portion of the amounts it has advanced to Pulier to date on behalf of ServiceMesh under Section 10.1(d)(ii) of the EPA.[20] That provision states that the equityholders of ServiceMesh:

shall, severally and not jointly, indemnify and hold [CSC and ServiceMesh] harmless from and against any and all . . . losses . . . ...

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