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Corporate - Counsel fees - Unclean hands.

Byline: Mass. Lawyers Weekly Staff

Where a plaintiff has filed a motion for advancement from the defendant corporation of the counsel fees and expenses that he incurred in prosecuting his appeal of a jury verdict, the plaintiff's right to further advancement of his litigation expenses can only be determined after an evidentiary hearing to consider whether he has unclean hands as a consequence of engaging in fraudulent transfers and other actions undertaken to render himself judgment-proof.

"[Defendant] VBenx is a Delaware Corporation. Typical of many Delaware corporations, the VBenx by-laws contained a provision requiring VBenx to indemnify and hold harmless directors and officers from all losses incurred, including reasonable attorneys' fees and expenses, in defending claims brought against them by reason of the fact that such person is or was a director of officer of the corporation, provided such person acted in good faith and in a manner which the person reasonably believed to be in the best interest of the corporation. The by-laws also required VBenx to advance all costs of defense, if the officers/directors executed an undertaking to pay this money back if it is ultimately determined that the person is not entitled to indemnification all as permitted by 8 Del. C. 145.

"[Plaintiff J. Brent] Finnegan now demands further advancement of approximately $216,000. This includes roughly $180,000 of attorneys' fees allegedly incurred in prosecuting his appeal and $35,000 defending discovery in aid of execution.

"In the present case, VBenx' submissions, supported by its post-judgment discovery, raise significant questions concerning whether Finnegan has been fraudulently transferring or secreting assets to frustrate VBenx' right to recover funds advanced to him to defend the claims that VBenx has, so far, successfully litigated against him. The Delaware Chancery Court's discussion of the unclean hands doctrine in Tafeen [v. Homestore, Inc., 2004 Del. Ch. LEXIS 38 (Del. Ch., March 16, 2004)] certainly suggests that, if the plaintiff had purchased an expensive home in Florida, where Florida homestead law would make that asset immune to creditors' claims, at a time that he anticipated he would be subject of claims based on his management of the defendant corporation, his conduct would be sufficient to establish a defense to his equitable claim for advancement. Certainly, if purchasing a home in Florida under these circumstances will support an unclean hands defense, fraudulent transfer of assets if that is established after adverse trial court judgments have entered will as well.

"For the foregoing reasons, defendant Finnegan's motion for an order of advancement is continued pending an evidentiary hearing in that nature of that suggested by 8 Del. Code 145(k) and discussed in Tafeen."

Finnegan, et al. v. VBenx Corporation (Lawyers Weekly No. 09-020-19) (7 pages) (Kaplan, J.) (Suffolk Superior Court) (Docket No. SUCV2009-03772-BLS1) (Feb. 6, 2019).

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Title Annotation:Finnegan v. VBenx Corporation, Massachusetts Superior Court, Business Litigation Session
Publication:Massachusetts Lawyers Weekly
Date:Mar 11, 2019
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