Background
Kyle Robertson co-founded Cerebral, Inc. and served as its CEO. After Cerebral terminated him in 2022, Robertson formed and led another telehealth company, Zealthy. The U.S. Department of Justice sued Cerebral and Robertson in 2024 over alleged consumer-protection violations. Through successive amended complaints, the DOJ added and then narrowed allegations concerning Robertson’s later conduct at Zealthy and an affiliate, Bruno Health.
Cerebral initially advanced Robertson’s defense costs under a 2019 indemnity agreement and its bylaws. After the DOJ’s complaint expanded to include Zealthy-related allegations, Cerebral stopped paying certain invoices and sought to separate work related to Robertson’s Cerebral tenure from work concerning Zealthy. Robertson brought this Delaware advancement action seeking payment of more than $800,000 in fees.
The Court’s Holding
The Court held that Robertson is entitled to advancement for Counts I through VI of the DOJ’s second amended complaint because those counts concern his conduct as Cerebral’s former CEO. But he is not entitled to advancement for Counts VII through X, which concern conduct at Zealthy and Bruno Health after he left Cerebral. References to Cerebral conduct in the DOJ’s narrative did not turn claims based on Robertson’s later Zealthy role into Cerebral-related claims.
The Court also held that Robertson is not entitled to advancement for Count II of the third amended complaint because that count alleges only Zealthy conduct, despite incorporating Cerebral-related background allegations. Robertson remains entitled to advancement for the Cerebral-related portion of Count I, while the parties agreed that Count III is not advanceable. Cerebral did not validly assume Robertson’s defense: its attempted assumption came too late and Robertson’s counsel reasonably identified a potential conflict. Robertson may recover fees on fees in proportion to his success.
Key Takeaways
- Advancement turns on whether the charged conduct arose from the officer’s covered corporate role, evaluated claim by claim.
- Background allegations about prior covered employment do not make later, separate-company misconduct advanceable.
- A company’s contractual right to assume the defense can fail if invoked too late or if counsel reasonably identifies a conflict of interest.
Why It Matters
The report underscores that mandatory advancement is not all-or-nothing where covered and noncovered claims can be realistically separated. Delaware courts may apply a temporal and entity-specific line between alleged misconduct in a former officer’s covered role and alleged misconduct at a later venture.
It also cautions companies that an assumption-of-defense provision must be exercised promptly and in a way that permits a workable defense. Waiting until years into a federal enforcement case, after multiple amended complaints and substantial discovery, can be too late.