The Delaware Chancery Court has held that

Advancement cases in this Court tend to follow a familiar pattern. An employer offers a prospective employee an incentive: a right to advancement for litigation costs arising from her employment, even where that litigation is brought by the hiring entity itself. Later, the employer has reason to sue the employee. The employee seeks to exercise her right to advancement, and a kind of “hirer’s remorse” sets in with the employer, which objects to funding both sides of the litigation. The employer therefore resists advancement, leading to litigation of the advancement right before this Court.

The matter before me here involves a twist on this pattern. The employees are former directors and a former officer of Current Media, LLC and have advancement rights via the company’s operating agreement with respect to litigation arising out of that status. The entity resisting advancement, however, is not the former employer—Current—but the acquirer of that entity, Al Jazeera International (USA) Inc., and its related companies. Al Jazeera’s obligations arise only indirectly from Current’s operating agreement. In the merger agreement by which Al Jazeera acquired Current, however, it agreed to honor those advancement obligations to the extent Current would have been so obligated.

In a separate underlying action, the employees, Joel Hyatt and Albert Gore, Jr., sued Al Jazeera not as former employees of Current but as members’ representative and member of Current, seeking the release, to the former members of Current, of money in an escrow fund created pursuant to the merger. The parties concede that those allegations did not trigger any advancement rights in favor of Hyatt and Gore. Al Jazeera, however, counterclaimed. It argued in part that Hyatt breached the Merger Agreement by denying the release of the funds in escrow, and that its claims to those funds is valid because Current had breached representations and warranties in the merger agreement leading to liability on the part of Al Jazeera. The underlying allegations of breaches of representations and warranties depend upon Al Jazeera’s contention that Hyatt and Gore, as directors and officers of Current, had caused Current to breach so-called “most favored nation” clauses in contracts between Current and third parties. Thus, the counterclaim results in the following scenario: Hyatt and Gore have a financial interest in appearing and defending their actions as officers and directors of Current who directed its dealings with third parties, because without such defense their right to funds in escrow (as well as the rights of other former members) will be forfeited. Under such a scenario, are Hyatt’s and Gore’s rights to advancement, as provided in Current’s operating agreement and as assumed by Al Jazeera, triggered?

I conclude that the answer to that question is yes as to the majority of Al Jazeera’s counterclaims.