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Nielsen v. EBTH Inc.

Court of Chancery of Delaware

September 30, 2019

ANDREW C. NIELSEN, JONATHAN C. NIELSEN and MICHAEL J. REYNOLDS, Plaintiffs,
v.
EBTH Inc., a Delaware Corporation, Defendant.

          Date Submitted: June 26, 2019

          D. McKinley Measley, Lauren Neal Bennett, and Barnaby Grzaslewicz, MORRIS NICHOLS ARSHT & TUNNELL LLP, Wilmington, Delaware; Joseph C. Weinstein and Sean L. McGrane, SQUIRE PATTON BOGGS (US) LLP, Cleveland, Ohio, Attorneys for Plaintiffs Andrew C. Nielsen, Jonathan C. Nielsen, and Michael J. Reynolds.

          Jonathan M. Stemerman, ELLIOTT GREENLEAF P.C., Wilmington, Delaware; Frances Floriano Goins, ULMER & BERNE, LLP, Cleveland, Ohio; and John M. Hands, ULMER & BERNE, LLP, Cincinnati, Ohio, Attorneys for Defendant EBTH, Inc., a Delaware Corporation.

          MEMORANDUM OPINION

          ZURN, VICE CHANCELLOR.

         This case presents the common issue of whether the plaintiffs are entitled to advancement of fees and expenses incurred in a separate action. Advancement cases often follow a familiar series of steps: 1) a corporation grants its officers or directors advancement rights; 2) those directors or officers are hauled into court for acts relating to their role with the corporation; 3) those individuals then seek to exercise the rights the corporation granted them; and 4) the corporation resists, arguing that entitlement is improper because the case is exceptional and requires the Court to deviate from well-settled principles of law. But all advancement cases present unique facts because the underlying actions take various forms. Despite the many nuances, few cases present facts that fall short of Delaware's standard favoring advancement.

         This case follows the common pattern. The plaintiffs are former officers or directors of the defendant company. The company granted mandatory advancement rights to the plaintiffs in its certificate of incorporation, as well as in separate indemnification agreements. While serving in their corporate roles, the plaintiffs sold their stock in the company in a private transaction. The company was not a party to the transaction, but entered into an agreement with the buyer that allowed the buyer to obtain the company's confidential and proprietary financial information in considering the transaction. That agreement explicitly authorized the buyer to seek information from the plaintiffs and one additional person who the plaintiffs controlled. Thereafter, the plaintiffs allegedly provided the buyer with false, misleading, or otherwise incomplete information about the company's financial status, and did so on the company's behalf. This information was material to the buyer's decision to complete the transaction. After the closing, the buyer discovered the plaintiffs' misconduct and sued the plaintiffs and the company, alleging that the plaintiffs used their status as company insiders to fraudulently induce the buyer to purchase stock for the plaintiffs' benefit.

         The plaintiffs asked for advancement, and the company refused, resulting in this action. On the plaintiffs' motion for summary judgment, the company contends that the plaintiffs are not entitled to advancement because they are not parties to the underlying action by reason of the fact that they served as officers or directors of the company. The company argues that this case is unique, and distinguishable from cases involving claims by a company against its own officers or directors, because the plaintiffs sold the stock in their individual capacities and because the company was not a party to the transaction and owed no duty to the buyer.

         I disagree and grant the plaintiffs' motion for summary judgment. The plaintiffs are entitled to advancement because, according to the pleadings in the underlying action, they are parties to that action by reason of the fact that they served as directors or officers of the company.

         I. BACKGROUND

         This advancement action for expenses and fees-on-fees arises from claims against plaintiffs Andrew Nielsen ("A. Nielsen"), Jonathan ("J. Nielsen"), and Michael Reynolds (collectively, "Plaintiffs") in an action pending in the United States District Court for the Southern District of Ohio, Light EBTH LLC v. EBTH Inc. et al., 1:19-cv-00011-TSB, (the "Ohio Action"). Defendant EBTH Inc. ("EBTH, " or the "Company") is a Delaware corporation with its principal place of business in Cincinnati, Ohio. Plaintiffs are former officers of EBTH and former members of EBTH's board of directors (the "Board"). At all times relevant to the Ohio Action and this proceeding, Plaintiffs served as EBTH officers or Board members.

         Plaintiffs contend that they are entitled to advancement for the Ohio Action under the Company's charter and its indemnification agreements with Plaintiffs. On Plaintiffs' motion for summary judgment (the "Motion"), the facts are drawn from the evidentiary record developed by the parties, including the undisputed allegations of the Verified Complaint for Advancement (the "Advancement Complaint"), the pleadings in the Ohio Action, and other documentary exhibits that are not factually disputed.

         A. Plaintiffs Were Officers, Directors, Employees, And Agents Of EBTH Covered By Advancement Provisions In The EBTH Charter And Indemnification Agreements.

         From May 2012 through early 2018, A. Nielsen served as the Company's President and Chief Executive Officer, and as a member of the Board. J. Nielsen served as the Company's Chief Revenue Officer from May 2012 through March 2017, as the Company's Chief Business Officer from March 2017 through May 2018, and as a member of the Board during those times. Reynolds served as the Company's Chief Financial Officer from May 2012 through October 2016, as Chief Operating Officer from October 2016 through March 2018, and as a member of the Board from May 2012 through late 2016.

         By serving in these roles, Plaintiffs benefitted from advancement provisions in the Company's Third Amended and Restated Certificate of Incorporation (the "Charter") and their Indemnification Agreements with EBTH. The Charter provides for mandatory indemnification and advancement as follows:

The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnified Person") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that such person . . . is or was a director or officer of the Corporation . . . .[1]
The Corporation shall advance (i.e., pay in advance) the expenses . . . incurred by a person in defending any Proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an unsecured undertaking by the Indemnified Person to repay all amounts advanced if it should be ultimately determined that the Indemnified Person is not entitled to be indemnified under this Article Tenth or otherwise.[2]

         The Charter also contains a "fees-on-fees" provision, providing that in connection with an action to enforce a right to advancement, "if successful in whole or in part, [Plaintiffs] shall be entitled to be paid the expense of prosecuting such claim."[3] Under the Charter's terms, the Company bears the burden of proving the individual is not entitled to the indemnification or advancement.[4]

         On November 19, 2014, EBTH entered into an Indemnification Agreement with each Plaintiff.[5] Each Indemnification Agreement contains the following advancement provision:

Advancement of Expenses. Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.[6]

         Section 13 of the Indemnification Agreements defines "Proceeding" as

any threatened, pending or completed action . . . in which Indemnitee was, is or will be involved as a party or otherwise, by reason of his or her Corporate Status, by reason of any action taken by him or of any inaction on his part while acting in his or her Corporate Status . . . .[7]

         Finally, Section 7 of the Indemnification Agreements entitles Plaintiffs to legal fees and costs incurred in prosecuting their advancement rights, "regardless of whether Indemnitee ultimately is determined to be entitled to such . . . advancement of expenses."[8]

         B. The Ohio Action Alleges Plaintiffs And EBTH Misrepresented Or. Omitted Material Facts In Connection With A Stock Purchase Transaction.

         I draw the following background from the allegations in the Ohio Action. Five individuals sold EBTH shares to ten different investors in "an overall offering by which multiple founders of the Company sold" their shares to multiple buyers, [9] referred to as the "Founder's Stock Offering."[10] The sellers included Plaintiffs, who were Company "insiders."[11] Light EBTH ("Light") purchased shares in the Founder's Stock Offering and is the plaintiff in the Ohio Action.[12] Light has three members: two individuals and an entity called SLC, LLC ("SLC"). Light was formed at the request of EBTH and Plaintiffs in order to avoid investments in EBTH stock by multiple individuals purchasing modest amounts.

         The transaction was memorialized in a Stock Purchase Agreement (the "SPA"), which reflects that Reynolds sold 328, 581 of his EBTH shares to Light for $801, 134.37, and J. Nielsen sold 40, 549 of his EBTH shares to Light for $98, 865.12.[13] Although A. Nielsen did not sell any EBTH shares to Light, he sold 781, 845 of his shares to another purchaser in the Founder's Stock Offering for $1, 906, 266.34.[14]

         EBTH was not a party to the SPA, but helped facilitate the Founder's Stock Offering. EBTH and SLC executed a Non-Disclosure Agreement (the "NDA"). Through the NDA, EBTH agreed to make its "non-public, confidential or proprietary" information available to Light[15] and stated that "EBTH, Inc. and its advisors and agents" would provide this information for purposes of "a potential investment or other transaction with the Company."[16] Light alleges that the NDA's scope included communications relevant to Light's investment through the Founder's Stock Offering.

         The NDA specifically identified A. Nielsen, J. Nielsen, Reynolds, and Chip Nielsen as agents and controlling "Principals" of EBTH, and identified the Principals as Light's sole source of EBTH information.[17] The Principals acted on behalf of the Company and each other in connection with any disclosures or communications made under the NDA and any transaction contemplated by the NDA.[18] A. Nielsen signed the NDA as EBTH's CEO.

         Before the transaction closed, Plaintiffs made a series of representations to Light and other investors regarding EBTH's financial vitality. Light attributes these representations to the "collective action" of Plaintiffs and EBTH.[19] On December 1, 2016, A. Nielsen verbally represented that EBTH's sales revenue was expected to rise in 2017.[20] On December 3, A. Nielsen, acting on behalf of Plaintiffs and EBTH, emailed Light a copy of the executed NDA.

         Also on December 3, A. Nielsen emailed Light an EBTH pitch deck containing additional information about the Founder's Stock Offering, including the price per share.[21] The pitch deck also included material financial projections for 2016 and 2017, which were consistent with A. Nielsen's verbal representations. A. Nielsen sent the pitch deck to Light from his EBTH email address, and J. Nielsen was copied on the email. The pitch deck bore the EBTH logo. On December 10, A. Nielsen emailed Light on behalf of Plaintiffs and EBTH and provided Company financial information for 2015 and 2016 (through October 2016), as well as the Company's purported growth model. He signed the email as EBTH's CEO.

         On December 19, A. Nielsen emailed Light "the most current info" pertaining to the 2017 projections.[22] On December 22, A. Nielsen again emailed Light to provide information about the Founder's Stock Offering. In that email, A. Nielsen proposed a valuation of the Company's common stock that was consistent with the 2016 projections previously provided on December 3 and December 10 and again presented it as "the most current info."[23] Neither email mentioned any changes or revisions to the 2016 budget or projections.[24] A. Nielsen sent both emails from his EBTH email address, on behalf of the Plaintiffs and the Company.

         On January 3, 2017, SLC asked Plaintiffs to send Light updated financials in order to assess the proposed stock purchase.[25] SLC also raised concerns about the "Company's SG&A expenses, and thereby its resulting loss expectations for 2016 and 2017, and raised various questions regarding the Company's required transaction size, profitability, and performance."[26] In response, A. Nielsen emailed Light on January 3 and attached a document that contained certain EBTH financial information, including some of the Company's "actual" financials as of November 30, 2016, but omitted certain financial statements and material information about EBTH's 2016 projections.[27] A. Nielsen sent the email from his EBTH address and on behalf of the other Plaintiffs and EBTH.

         On January 6, in reliance on Plaintiffs' oral and written statements on EBTH's behalf, Light purchased EBTH shares in the Founders Stock Offering.[28]Under the SPA, Plaintiffs represented and warranted that the transaction would not violate any state or federal law, [29] and that "[t]o each Seller's knowledge, since October 19, 2016, there has not been a material adverse effect on the business of the Company, "[30] "implying that full disclosure of the business's financial projections and results through that point in time had been made."[31] The stock purchase closed on January 9.

         Thereafter, a series of post-closing communications revealed that EBTH's actual financial state was materially different than Plaintiffs and EBTH represented to Light before the closing.[32] Light learned

the information provided by [Plaintiffs] as of the consummation of the stock transaction did not include the detailed, most up-to-date financial information as had been requested, the most current projection information for the Company's 2016 financial performance, or accurate information available to [Plaintiffs] as of the time of the parties' interactions that was necessary to make [Plaintiffs'] prior disclosures accurate, corrected, complete, and not misleading under the circumstances.[33]

         Light concluded that Plaintiffs and EBTH were aware of the information's fraudulent nature and had the "willful intent" to induce Light to purchase EBTH shares "through the presentation of an outdated and fabricated growth model to which [Plaintiffs] claimed to be privy as insiders of the Company."[34]

         For example, on January 10, EBTH's Chief Financial Officer emailed the first routine distribution of EBTH's financial information to Light and other EBTH stockholders. The email included "EBTH November 2016 Financials" and was addressed to Plaintiffs and blind copied to EBTH investors.[35] The email contained more complete and detailed financial information than Light had received prior to the closing, as well as information that Light had not received prior to the closing.[36] The CFO was not an authorized point of contact under the NDA, so Light alleges it could not have contacted him or gathered this information prior to closing.[37]

         According to Light, the January 10 email demonstrated that (1) EBTH had reforecasted its 2016 projected losses in October 2016 and materially increased them over the loss numbers that had been provided to Light; (2) EBTH and Plaintiffs, as EBTH insiders and management, knew of this October 2016 reforecast; and (3) Plaintiffs, as EBTH insiders, concealed this information and continued to knowingly misrepresent EBTH's financials.[38] Light alleges that Plaintiffs and EBTH utilized accurate EBTH information to manage EBTH and value their own stock, but knowingly gave Light inaccurate information that they failed to update or correct.[39] Light concludes Plaintiffs fraudulently induced Light to purchase common stock shares of the Company by "repeatedly and materially misrepresenting the true (and severely deteriorating) financial condition of the Company."[40]

         C. Litigation Ensues; Plaintiffs Demand Advancement Of Their Legal Expenses From The Ohio Action, And EBTH Refuses To Pay.

         On September 5, 2018, Light's counsel sent a letter to Plaintiffs, demanding payment of $900, 000 in connection with Plaintiffs' alleged pre-closing statements and omissions. On September 28, Plaintiffs' counsel forwarded Light's September 5 letter to the Company. On November 27, Light's counsel informed Plaintiffs' counsel that "[Light] has authorized this Firm to proceed with the filing of a Complaint against your clients [A. Nielsen, J. Nielsen, and Reynolds]."[41] On December 5, Plaintiffs' counsel sent the Company a demand for indemnification and advancement of expenses incurred and to be incurred in connection with Light's demand and threatened lawsuit, any lawsuit Light actually filed, and any future judgments, penalties, fines and amounts paid in settlement.

         Light filed the Ohio Action on January 3, 2019, alleging Plaintiffs materially misrepresented EBTH's deteriorating financial condition prior to the SPA's closing. Light's complaint (the "Original Ohio Complaint") included claims against Plaintiffs for violations of federal and Delaware securities laws, common law fraud, negligent misrepresentation, civil conspiracy, breach of fiduciary duty, and in the alternative, unjust enrichment.[42] Light also brought a claim of aiding and abetting breach of fiduciary duty against EBTH, as well as a claim for breach of contract against J. Nielsen and Reynolds.

         On January 10, EBTH denied Plaintiffs' requests for indemnification and advancement.[43] EBTH asserted that Plaintiffs' involvement in the Ohio Action was not by reason of the fact that they were former directors or officers of the Company.[44] EBTH stated Plaintiffs "were not acting in their status as officers of [EBTH] when they sold their shares"[45] and that "[c]learly, [Plaintiffs] were acting in their personal capacities in the personal sale of their common stock."[46]

         Undeterred, on January 23, Plaintiffs sent Undertakings for Indemnification and Advancement of Expenses to EBTH; on February 4, Plaintiffs asked the Company to reconsider Plaintiffs' requests. When EBTH did not respond, Plaintiffs contacted the Company on February 4 and asked for a response. On February 8, the Company again denied Plaintiffs' requests, asserting that the "Complaint [in the Ohio Action] arises out of a private stock transaction whereby Light . . . purchased stock held by, among others, [Plaintiffs]" and that "[i]t is clear from the face of the Complaint that this dispute has nothing to do with EBTH or [Plaintiffs'] former roles at EBTH."[47]

         D. Plaintiffs File This Action To Compel The Advancement Of Expenses In The Ohio Action And To Seek Fees-on-Fees.

         On February 27, Plaintiffs filed the Advancement Complaint to compel the advancement of their fees and expenses incurred defending against the Ohio Action. On March 21, EBTH answered the Complaint. On April 11, Plaintiffs filed the pending Motion. The parties briefed the Motion, and I held oral argument on May 17. At oral argument, EBTH conceded that Plaintiffs were entitled to advancement for legal costs and fees accrued in defending the Ohio Action's breach of fiduciary duty count. EBTH still disputes entitlement as to the other counts.

         On June 3, Light filed a First Amended Complaint in the Ohio Action (the "Ohio FAC"). The Ohio FAC colors the factual and legal allegations set forth in the Original Ohio Complaint. It adds a claim for violation of Ohio securities laws; makes Plaintiffs the subject of the aiding and abetting breach of fiduciary duty claim; and adds A. Nielsen as a defendant to the breach of contract claim. The Ohio FAC asserts federal securities violations against Plaintiffs based on their control over EBTH. In addition, the Ohio FAC further details Plaintiffs' and EBTH's roles in the underlying stock purchase transaction, as well as the relief Light seeks from both Plaintiffs and the Company. Importantly, the Ohio FAC makes new allegations regarding Plaintiffs' acts and omissions in connection with the stock purchase transaction, and alleges that, at every step of the transaction, Plaintiffs acted as agents of each other and EBTH. The parties agreed the Ohio FAC affects the disposition of this Motion and therefore completed supplemental briefing on June 26.[48]

         II. ANALYSIS

         A motion for summary judgment will be granted if the pleadings and materials submitted to the Court "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."[49] Advancement proceedings are summary by statute.[50] As such, summary judgment is an efficient and appropriate method to expeditiously resolve advancement disputes because "the relevant question turns on the application of the terms of the corporate instruments setting forth the purported right to advancement and the pleadings in the proceedings for which advancement is sought."[51]

         There is no genuine dispute of material fact before the Court.[52] I need only address the following questions: (1) whether Plaintiffs are parties to the Ohio Action by reason of the fact that they served as EBTH officers or directors and are therefore entitled to advancement as a matter of law, and (2) whether Plaintiffs are entitled to fees-on-fees for bringing this action.[53] Each count in the Ohio FAC is based on Plaintiffs' alleged misrepresentations, omissions, and active concealment of material information, and so I address entitlement generally, rather than on a count-by-count basis.[54] Plaintiffs are entitled to advancement and fees-on-fees, for the reasons that follow.

         A. Advancement

         As to advancement, the sole issue presented is whether Plaintiffs are parties to the Ohio Action by reason of the fact that they served as EBTH officers or directors, where the challenged transaction involves their personal sale of stock. Advancement "attract[s] capable individuals into corporate service" by "provid[ing] corporate officials with immediate interim relief from the personal out-of-pocket financial burden of paying the significant on-going expenses inevitably involved with investigations and legal proceedings."[55] "The broader salient benefits that the public policy behind [S]ection 145 seeks to accomplish for Delaware corporations will only be achieved if the promissory terms of advancement contracts are enforced by courts even when corporate officials . . . are accused of serious misconduct."[56] Plaintiffs' entitlement to advancement depends on the mandatory advancement provisions in EBTH's Charter and Indemnification Agreements, which incorporate the "by reason of the fact" standard from Section 145 of the DGCL.[57]

         An advancement claim arises "by reason of the fact" of a person's corporate status "if there is a nexus or causal connection between any of the underlying proceedings contemplated by Section 145(e) and one's official corporate capacity."[58] "This language has been interpreted broadly, and includes all actions brought against an officer or director for wrongdoing that he committed in his official capacity, and for all misconduct that allegedly occurred in the course of performing his day-to-day managerial duties."[59] The requisite nexus "exists if corporate powers were used or necessary for the commission of the alleged misconduct."[60] The nexus is also established if the underlying claim is "inextricably intertwined" with the actions taken in the plaintiffs' former capacities as officers or directors, such that the plaintiffs would necessarily be required to defend those actions and possibly disprove allegations that they acted improperly in those capacities.[61]

         1. Light Explicitly Challenges Plaintiffs' Conduct As Officers Or. Directors Of EBTH.

         By its plain text, the Ohio FAC explicitly and repeatedly challenges Plaintiffs' conduct as EBTH officers and directors. In alleging that Plaintiffs and EBTH collectively and fraudulently induced Light to purchase EBTH stock, the Ohio FAC emphasizes each Plaintiff's role within EBTH.[62] The Ohio FAC states:

At all relevant times, [Plaintiffs] controlled the Company and acted as agents on its behalf and each other as related to [Light's] purchase of stock at issue herein. As alleged below, each of the [Plaintiffs] was a central and primary participant in [Plaintiffs' and EBTH's] joint action to promote the stock sale at issue to [Light], enter into agreements between [Light], on the one hand, and all three [Plaintiffs], on the other, and to make materially false and/or deceptive financial statements and disclosures provided to [Light] only through the three [Plaintiffs] on behalf of each other and of the Company.[63]

         The Ohio FAC repeatedly alleges Plaintiffs acted on EBTH's behalf and in their roles as EBTH's agents and managers that directed and controlled the Company:

• "Prior to the transaction, on or about December 3, 2016, [Plaintiffs], acting on behalf of the Company but in furtherance of their collective scheme to defraud, provided a copy of an EBTH pitch deck that included . . . material financial projection information about the Company."[64]
• "[T]hrough their statements, disclosures, and dealings leading up to the stock transaction, [Plaintiffs] were speaking and making statements on behalf of each other and on behalf of the Company and acting in their roles as agents of the Company and management principals thereof who directed and controlled Company policy."[65]
• "The December 10, 2016 Email was sent to Mark Sullivan and Ellen Schubert by A. Nielsen on behalf of all of [Plaintiffs and EBTH], who were referenced as 'we' therein . . . ."[66]
• "[Plaintiffs and EBTH] next provided a December 19, 2016 email sent to Mark Sullivan by A. Nielsen from his Company email on behalf of all of [Plaintiffs and EBTH], again referenced as 'we' therein . . . ."[67]
• "In a December 22, 2016 email to Mark Sullivan, sent from a Company email address on behalf of [Plaintiffs and EBTH], A. Nielsen again described the proposed transaction as a 'Founder's Stock Offering' to sell up to 2, 950, 000 shares of common stock owned at that time by the principals of the Company . . . ."[68]
• "In response to this specific inquiry concerning the Company's 2016 and 2017 expenses, operations, and profitability, A. Nielsen sent a January 3, 2017 email from his Company email address and on behalf of [Plaintiffs and EBTH], again referenced as 'we' therein . . . ."[69]
• "Moreover, given the extent of [Plaintiffs'] respective roles with the Company, and their actions on its behalf exposing it and themselves to Section 10(b) liability, [Plaintiffs and EBTH] knowingly made the above-stated false statements and/or omissions of material fact in conflict with their duties to disclose arising from the NDA . . . ."[70]
• "Moreover, as the issuer of the stock on behalf of whom the statements and omissions were made under the NDA, and as the controlling persons who participated in both the disclosure process and the stock transaction, each of the Company and [Plaintiffs] had the opportunity to engage in the deceptive schemes, statements, and practices to which [Light] was exposed and by which it was deceived and induced into purchasing Company stock."[71]
"Given the extent of [Plaintiffs'] respective roles with the Company, and their actions on its behalf [Plaintiffs and EBTH] knowingly made the above-stated material false statements and/or omissions of material fact."[72]
• "[Plaintiffs], through their independent conduct and their control of the Company, combined and agreed between them to engage in concerted action and through an improper scheme and practice designed to defraud and induce [Light] to sign the Common Stock Purchase Agreement and to purchase shares of the Company."[73]
• "[Plaintiffs], through their independent conduct and their control of the Company, willfully, maliciously, and with reckless indifference caused harm to [Light] . . . ."[74]
• "[Light] brings this claim as a shareholder for [Plaintiffs'] breach of their fiduciary duties owed to the Company and resulting from their provision of false and inaccurate information on behalf of the Company but in the furtherance of their individual sales of Company stock . . . ."[75]
"By virtue of their positions as members of the Company's Board, and/or officers of the Company, [Plaintiffs] owed fiduciary duties as set forth and alleged herein above."[76]

         Light's claims are "brought against [each] officer or director for wrongdoing that he committed in his official capacity."[77] Plaintiffs will be required "to defend their actions as officers and directors of the Company"[78] and possibly disprove allegations that they acted improperly in those capacities in the Ohio Action.[79] This is sufficient to satisfy the "by reason of the fact" standard.

         2. Plaintiffs Accessed And Misused Confidential EBTH Information By Virtue Of Their Roles With EBTH.

         Plaintiffs are also entitled to advancement because the Ohio FAC alleges Plaintiffs accessed and shared (or purposefully withheld) EBTH's confidential financial information by reason of the fact that they served the Company. "[W]here the claims asserted against a defendant in an action are based on the misuse of confidential information that the defendant learned in his or her official corporate capacity, that action qualifies as being asserted 'by reason of the fact' of that corporate capacity."[80] Advancement is appropriate if the "[t]he gravamen of the underlying complaint is that [the plaintiff] had access to proprietary information by reason of the fact that he was a director and officer of [the defendant] and that he wrongly used that information for his personal benefit."[81]The relevant inquiry "is into whether the [wrongful] scheme is alleged to have employed the corporate powers (or, for example, confidential inside information acquired through the corporate status) conferred upon the officer by virtue of his status."[82]

         The Ohio FAC alleges that Plaintiffs were able to share false, misleading, or incomplete EBTH information because they were Company "insiders" with authority to control EBTH's financial narrative.[83] Through the NDA, EBTH explicitly authorized Plaintiffs to share the Company's confidential and proprietary information in relation to the stock purchase ...


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