Summary
granting a third-party defendants' motion to modify a status quo order because the moving party demonstrated "good cause" for modification
Summary of this case from R&R Capital LLC v. MerrittOpinion
C.A. No. 5724-VCN.
Submitted: November 1, 2010.
November 18, 2010.
S. Mark Hurd, Esquire, Morris, Nichols, Arsht Tunnell LLP, Wilmington, DE.
Paul A. Fioravanti, Jr., Esquire, Prickett Jones Elliott, P.A., Wilmington, DE.
Samuel T. Hirzel, Esquire Proctor Heyman LLP, Wilmington, DE.
Dear Counsel:
Before the Court is the Third-Party Defendants' Motion for Modification of Status Quo Order to Permit Advancement. Having considered the parties' briefs, the arguments presented in the November 1 teleconference, and Mr. Hirzel's letter to the Court of November 1, the Court will modify the Status Quo Order to permit Brantley Partners IV, L.P. ("Fund IV") to pay advancement to the Third-Party Defendants Paul H. Cascio and Cascio Investment Co., LLC (the "Cascio Defendants").
Third-Party Defendant 3S Advisors, LLC was brought into this action after the pending motion was filed.
Plaintiffs have raised two objections to the Cascio Defendants' motion. First, Plaintiffs contend that the claims against the Cascio Defendants did not arise out of their work for Fund IV, and thus do not entitle them to advancement under § 19(b) of the Fund IV limited partnership agreement. Second, Plaintiffs argue that the Cascio Defendants' claims for advancement are not ripe because they have not yet sought advancement from other available sources, as is required before advancement would be available from Fund IV.
Section 19(b) of the Fund IV limited partnership agreement provides for the advancement to that entity's General Partner, and to the general and limited partners, agents, and employees of the General Partner, of "attorneys' fees and expenses which arise out of or in any way relate to the Partnership . . . or which arise by reason of any of them being the General Partner, or a partner, employee, or Partner." The Cascio Defendants, who are current or former partners of Fund IV General Partner, are accused of breaching their fiduciary duties to, and of participating in a conspiracy to remove, Fund IV's General Partner. Although it may be attenuated, the nexus between these claims and Fund IV is sufficient to satisfy the very broad "in any way relate to" language of the advancement provision.
Section 19(b) tempers the broad right of advancement it provides by requiring that potential indemnitees first seek advancement from other available sources. The Cascio Defendants' textual argument that this Prior Recovery Provision applies only to indemnification and not to advancement fails because § 19(b) uses the term indemnification to refer to both advancement and indemnification. Indeed, the term "advancement" does not appear in § 19(b), including the specific provision under which the Cascio Defendants seek advancement.
In addition, the Cascio Defendants have demonstrated that advancement is unavailable from other sources. During the November 1 teleconference, Mr. Fioravanti represented that Brantley Venture Management IV would not provide advancement to the Cascio Defendants. In a November 1 letter to the Court, Mr. Hirzel represented (1) that Brantley Management Corporation, Inc. had denied Mr. Cascio's request for advancement and (2) that 3S Advisors, LLC was not a source of advancement or indemnification for the Cascio Defendants because 3S Advisors does not have an operating agreement. The parties have identified no other potential sources of advancement.
Id. at 17.
Plaintiffs have abandoned any opposition to advancement to the Cascio Defendants based on this line of argument. Letter of S. Mark Hurd, Esq., dated November 18, 2010.
Thus, for purposes of the pending motion, the Cascio Defendants have established an entitlement to advancement under § 19(b) of the Fund IV limited partnership agreement that would supersede the concerns that animated entry of the Status Quo Order. Accordingly, good cause exists to grant the Third-Party Defendants' Motion for Modification of Status Quo Order to Permit Advancement, and an implementing order will be entered.