Mr. Salomon, a former officer of Kroenke Sports and Entertainment, LLC and the Outdoor Channel Holdings (the Companies), brought an action in the Court of Chancery seeking advancement for costs and fees incurred during an arbitration proceeding and related confirmation of that arbitration. The Companies moved to dismiss the advancement action because it claimed that, according to an affidavit Salomon filed in a different action, Salomon was insolvent.3 Therefore, the Companies argued, Salomon would be unable to repay the amounts advanced to him under the terms of his undertaking if it was ultimately determined that he was not entitled to indemnification under title 8, section 145 of the Delaware Code.4 Salomon, in turn, moved for summary judgment on his advancement claims.
The Court of Chancery denied the Companies’ motion to dismiss and granted Salomon’s motion for summary judgment.5 The Court of Chancery also ordered the parties to submit a Fitracks order to govern the submission of invoices and the handling of advancements through the final disposition of the case.6 The Companies appealed the summary judgment decision to the Delaware Supreme Court as a “final” decision on the merits prior to the entry of a Fitracks order.7
The Delaware Supreme Court dismissed the appeal of the motion for summary judgment, finding it to be an improper appeal of an interlocutory (that is, nonfinal) ruling, because the Court of Chancery used what is known as a Fitracks order to implement the procedure for submitting invoices and handling payments.8 In addition, and without officially endorsing the use of Fitracks orders, the court signaled its approval of those orders:
But even if the Companies had appealed from the Fitracks Order – which was proposed by the parties and adopted by the Court of Chancery after the appeal was filed – the appeal would be interlocutory because, under the Fitracks Order, the Court of Chancery retains jurisdiction to resolve disputes about the amount of fees and expenses for which Salomon demands advancement going forward.9
Further, the court stated that a party may appeal a decision of a Fitracks order, in an appropriate case, under interlocutory review pursuant to Supreme Court Rule 42, “or might seek entry of a final judgment under Court of Chancery Rule 54(b).”10 Thus, appellate options are available to parties that challenge decisions under Fitracks orders, but a decision on a motion for summary judgment is not a final, appealable decision when the Court of Chancery orders the parties to also submit a Fitracks order.
Takeaway
A decision by the Court of Chancery to enter summary judgment in an advancement action is not appealable as a final judgment when the Court of Chancery has directed the parties to enter a Fitracks order. Furthermore, although the Delaware Supreme Court has not officially endorsed the well-known Fitracks procedure in advancement actions, this recent case, at least implicitly, indicates that the court does not disapprove of their use by the Court of Chancery.
- See Kroenke Sports & Entm’t, LLC v. Salomon, 2020 WL 1951679, at *2 (Del. Apr. 23, 2020).
- Id. at *2 n.6. Despite its common usage in the Court of Chancery, the Delaware Supreme Court has not yet officially endorsed Fitracks-style orders for advancement of expenses actions under Del. Code Ann. tit. 8, section 145. A Fitracks order provides a dispute resolution procedure for advancement of attorneys’ fees and costs, and also requires that a senior member of the Delaware bar certify that (i) they personally reviewed the invoices, (ii) each time entry and expense falls within the scope of advancement rights, (iii) in their professional judgment, the fees and expenses charged are reasonable, (iv) the services rendered were thought to be prudent and appropriate in their professional judgment, and (v) the amounts billed are in accordance with the terms of representation agreed to by an officer or director. See Danenberg v. Fitracks, Inc. 58 A.3d 991, 1003 (Del. Ch. 2012).
- Salomon v. Kroenke Sports & Entm’t, LLC, 2020 WL 758676, at *27 (Del. Ch. Feb. 10, 2020).
- Id.
- Salomon v. Kroenke Sports & Entm’t, LLC, C.A. No. 2019-0858-JTL, transcript (Del. Ch. Feb. 26, 2020; filed Mar. 12, 2020) (holding the legal sufficiency of Salomon’s undertaking did not depend on his ability to repay advancement amounts that are ultimately not indemnifiable).
- Salomon, 2020 WL 956745, at *3 (Del. Ch. Feb. 26, 2020).
- See Kroenke Sports & Entm’t, 2020 WL 1951679, at *1 (Del. Apr. 23, 2020).
- Id. (“As an initial, technical matter, the order from which the Companies appealed – that is, the Summary Judgment Order – required the parties to submit a further, implementing order setting forth the process for submitting invoices and handling advancement payments until the litigation for which Salomon sought advancement is finally resolved.”).
- Id.
- Id. at *2.
Client Alert 2020-284
