Background
Michael Har-Noy, Mirror Biologics, Inc.’s founder and former director, was appointed to the board and as CEO of Mirror Biologics, Ltd., Mirror USA’s 99.9%-owned Israeli subsidiary. Mirror USA sued Har-Noy in Israel, alleging that he used his control of Mirror Israel to advance personal interests, harm Mirror USA, breach fiduciary duties, and continue to hold himself out as a Mirror Israel director after his purported removal.
Before Mirror USA filed the Israeli action, Har-Noy demanded advancement under Mirror USA’s bylaws for expenses arising from the threatened litigation. Mirror USA denied the demand. Har-Noy then brought this Delaware advancement action and moved for summary judgment on entitlement.
The Court’s Holding
Magistrate in Chancery Danielle Gibbs concluded that Har-Noy is entitled to mandatory advancement under Section 9.1(c) of Mirror USA’s bylaws. The provision covers a person serving, at Mirror USA’s request, as a director or executive officer of another enterprise. Mirror USA’s appointment of Har-Noy to Mirror Israel’s board and CEO position by virtue of his Mirror USA position amounted to a request under Delaware law.
The Israeli complaint also satisfied the “by reason of the fact” requirement because its allegations directly implicated Har-Noy’s corporate positions and exercise of corporate power, even though Mirror USA asserted that the conduct occurred after his termination. Mirror USA could not disavow the bylaws after admitting in its answer that they were the company’s bylaws, and Israeli law did not control the Delaware corporation’s advancement obligation under the internal-affairs doctrine. Har-Noy was additionally entitled to fees-on-fees and prejudgment interest at the legal rate, subject to the Report’s Rule 144 exceptions process.
Key Takeaways
- A parent corporation’s use of control over a subsidiary to appoint an individual to the subsidiary’s board or officer role constitutes a request for advancement purposes.
- The court examines the underlying pleadings and the governing advancement language; allegations centered on official corporate conduct meet the capacity nexus.
- A successful advancement claimant may recover fees incurred enforcing advancement rights and prejudgment interest from the proper demand date.
Why It Matters
The decision reinforces Delaware’s contract-focused approach to advancement. A Delaware corporation that adopts mandatory advancement language may be required to fund a covered person’s defense even when the underlying dispute is foreign litigation involving a subsidiary.
It also illustrates that a corporation’s own pleading admissions and allegations can foreclose arguments that its bylaws are ineffective or that the underlying claims do not arise from the claimant’s corporate capacity.