EFiled: Nov 9 2010 4:31PM EST
Transaction ID 34267749
Case No. 5772-VCN
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JOHN W. NOBLE
VICE CHANCELLOR
417 SOUTH STATE STREET
DOVER, DELAWARE 19901
TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179
November 9, 2010
David J. Teklits, Esquire
Morris, Nichols, Arsht & Tunnell LLP
1201 North Market Street
Wilmington, DE 19801
Re:
Samuel T. Hirzel, Esquire
Proctor Heyman LLP
1116 West Street
Wilmington, DE 19801
Fuhlendorf v. Isilon Systems, Inc.
C.A. No. 5772-VCN
Date Submitted: November 3, 2010
Dear Counsel:
The parties agree that Plaintiff Stuart W. Fuhlendorf is entitled to
advancement of expenses incurred in defending several proceedings arising out of
his employment with Defendant Isilon Systems, Inc.1
Although Isilon has
advanced substantial sums to fund Plaintiff’s defense costs, its enthusiasm for that
effort has waned and the parties are now engaged in a dispute over the
reasonableness of the amounts sought by the Plaintiff pursuant to Isilon’s
1
The Court awaits submission by counsel of a form of order implementing their agreement that
the Plaintiff is entitled to summary judgment as to his right to advancement.
Kevin M. Coen, Esquire
Samuel T. Hirzel, Esquire
November 9, 2010
Page 2
advancement obligation—an obligation created by the Indemnification Agreement
between the Plaintiff and Isilon.
Both Delaware law and the Indemnification Agreement recognize that the
value of advancement will be impaired if payment is not made promptly and if
additional burdens are imposed upon the indemnitee at a time when he is burdened
by the underlying litigation for which advancement is appropriate. Nevertheless,
the fees and expenses sought by way of advancement must be reasonable. Despite
Plaintiff’s undertaking to repay any sums improvidently advanced, neither the
Indemnification Agreement nor Delaware law can fairly be read as requiring Isilon
to honor clearly unreasonable advancement requests.
This Court has addressed a similar impasse in Duthie v. CorSolutions
Medical, Inc.2 Although some level of review is necessary, it is not appropriate to
review Plaintiff’s requests with the same degree of scrutiny that would be expected
in an indemnification proceeding. Duthie sets forth an appropriate procedure to be
followed:
2
2008 WL 4173850 (Del. Ch. Sept. 10, 2008).
Kevin M. Coen, Esquire
Samuel T. Hirzel, Esquire
November 9, 2010
Page 3
(1)
(2)
Isilon shall identify those fees which it asserts fall outside the
standard of Delaware law for advancement; its counsel shall
certify their good faith belief that the advancement of such fees
is not appropriate;
(3)
The fees as to which there is no dispute shall be promptly paid;
(4)
The fees as to which any dispute remains shall be submitted to
a Special Master;3 and
(5)
3
Plaintiff’s counsel, if they have not already done so, shall
certify in good faith that the fees and expenses for which
advancement has been sought were incurred reasonably as a
matter of sound professional judgment;
The costs of the Special Master will be divided equally between
the parties, except that the entire cost of the Special Master will
be borne by Isilon if it turns out that its objections to payment
of the fees for which advancement has been sought have been
made without good cause.4
Correspondence from counsel after oral argument evidences the contentiousness of this dispute
and further persuades the Court that appointment of a Special Master is, unfortunately,
unavoidable.
4
Duthie, 2008 WL 4173850, at *2. Isilon appears to believe that paying fifty percent of
Plaintiff’s advancement requests constitutes reasonable conduct. There appears to be—but the
Court does not now determine—no rational, non-arbitrary basis for that bright line. Any
proposed rollback from the advancement requests submitted by Plaintiff must be supported by a
good faith basis.
In addition, it is imperative that Isilon’s review of the Plaintiff’s advancement requests be
accomplished expeditiously. A leisurely review will necessarily frustrate the Plaintiff’s rights.
The Court will not now set a timetable, but, if delays ensue, it will, on application, establish a
turnaround time.
Kevin M. Coen, Esquire
Samuel T. Hirzel, Esquire
November 9, 2010
Page 4
If necessary, the Court will appoint the Special Master. In this instance, it
seems better to ask the parties to attempt to agree upon someone to serve in that
capacity. Whether the parties should look to Delaware for someone with expertise
in our indemnification law or whether they should look to Seattle because that is
where the fees are being incurred is a question that the Court leaves in the first
instance to them.
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap
cc: Register in Chancery-K
