On September 24, 2026, Vice Chancellor Cook of the Delaware Court of Chancery issued a post-trial decision denying a former general counsel’s claim for advancement of legal fees under his company’s operating agreement. The Court held that the doctrine of unclean hands barred the claim—a relatively rare result in Delaware, where advancement rights are strongly favored and frequently enforced. The decision is a cautionary tale for in-house lawyers, corporate managers, and boards about the risks that arise when a chief legal officer’s personal interests collide with a client’s instructions.

Background

Care One, LLC was a manager-managed Delaware LLC formed in 1998 to operate nursing homes and assisted-living facilities. Its operating agreement provided mandatory advancement of legal fees to officers and other covered persons. Critically, the agreement characterized these advancement rights as a contract that could not be repealed or modified to affect existing rights.

Androsky Lugo served as Care One’s General Counsel for over a decade—following a decade of serving as Care One’s Associate General Counsel—and had sweeping authority over all legal matters. The company’s manager, Daniel Straus, relied on Lugo entirely for legal affairs.

According to the opinion, in 2010, Care One brought suit against a former executive, alleging claims regarding financial impropriety. The former executive demanded advancement of fees, and Straus was furious. He gave Lugo an unambiguous directive: eliminate advancement rights for everyone except Straus himself and make sure no one could ever demand advancement again. Lugo understood the instruction—which he confirmed at trial. He coordinated an amendment to the operating agreement that limited mandatory advancement to Straus as Manager. But Lugo knew—based on coordination with multiple outside counsel—that the amendment alone would not extinguish the vested rights of existing officers, including Lugo’s own right. Waivers were the straightforward solution, and again, Lugo knew this.

Lugo never told Straus that vested rights survived the amendment. He never advised Straus that waivers were needed. He never pursued waivers from any of the six or seven officers with vested rights. Straus signed the amendment believing the problem was solved.

Over a decade later, Lugo was charged with felonies and accused of embezzling over $30 million from Care One. After his termination, Care One sued Lugo under the RICO Act. Lugo then demanded advancement—asserting the very right his client had instructed him to eliminate years earlier.

The Court’s Decision

After trial, the Court held that Lugo’s advancement claim was barred by unclean hands. This is a significant ruling. Delaware courts have long enforced advancement rights as near-absolute contractual obligations, and successful unclean hands defenses in this context are exceedingly rare. The Court acknowledged the unusual nature of the result but found that the facts compelled it.

The Court found that Lugo’s misconduct had an “immediate and necessary” relationship to his advancement claim—the required nexus under Delaware law. His misconduct was not generalized wrongdoing. It went directly to the continued existence of the advancement right itself: Lugo was tasked with eliminating it, knew the amendment would not accomplish that goal, and deliberately withheld that information from his client—to his own personal benefit.

The Court emphasized Lugo’s special position of trust as General Counsel. The issue was not self-sacrifice—Lugo was not required to surrender his advancement right. But he could not knowingly leave his client uninformed about a right his client had specifically directed him to extinguish. The Court rejected Lugo’s argument that Straus should be charged with knowledge of the contents of the amendment he signed, noting that the critical information—that vested rights survived—was not apparent from the face of the document.

On credibility, the Court found Straus significantly more credible than Lugo, whose testimony shifted repeatedly over the course of the litigation. The Court did not reach the company’s alternative defense of equitable estoppel.

Key Takeaways

• Unclean hands can defeat advancement—even in Delaware. While advancement claims remain strongly favored, this decision confirms that a claimant’s own misconduct can bar recovery where the misconduct has a direct nexus to the right being asserted. Companies defending against advancement claims should evaluate whether fact patterns similar to this case exist.
• General counsel occupy a unique position of trust—and thus, face unique risks. The Court placed great weight on Lugo’s role as the company’s chief legal officer. In-house lawyers who are tasked with revising governance documents that affect their own rights must be scrupulous about disclosure. Silence in the face of a conflict can have severe consequences.
• Amending an operating agreement may not eliminate vested advancement rights. Where an agreement characterizes advancement rights as a contract, an amendment alone may be insufficient. Companies seeking to eliminate or curtail these rights should obtain explicit written waivers from the affected individuals.
• Managers and boards should not rely solely on in-house counsel to police conflicts. Straus delegated the entire advancement issue to the very person whose rights were at stake. Companies should consider involving independent outside counsel when governance changes touch the personal interests of the lawyers advising on them.
• Credibility matters at trial. The Court drew a sharp contrast between the two witnesses. Shifting testimony and inconsistent positions over the course of litigation can be fatal to a claimant’s case, particularly in an equity proceeding where the court is weighing the claimant’s own conduct.