The Harmon 1999 Descendants' Trust v. CGH Investment Management, LLC
C.A. No. 2021-0407-KSJM
Del. Ch.Sep 21, 2021Background
- The Harmon 1999 Descendants’ Trust (Trust) sued CGH Investment Management, LLC (successor to Traditions, L.P.) in Delaware Chancery for advancement of fees and expenses incurred defending and prosecuting counterclaims/crossclaims in a related federal suit in the E.D. Va. (the Virginia Action).
- Advancement is sought under Traditions’ Partnership Agreement, which provides advancement to "Partners, independent contractors and other agents." The Trust contends it is a limited partner (or alternatively an agent).
- In the Virginia Action, Germaine Harmon and CGH seek a declaration that the Trust is not a limited partner and demand return of funds the Trust received in that capacity; that factual issue is actively litigated and set for a December 2021 jury trial.
- The Trust moved for summary judgment in Delaware on entitlement to advancement; CGH moved to dismiss or stay the Delaware action in favor of the Virginia Action.
- Chancellor McCormick found the Trust’s limited-partner status to be a material, fact-intensive, and disputed issue likely to be decided sooner in the Virginia Action, so the court exercised its discretion to stay the Delaware advancement proceeding and held the summary-judgment motion in abeyance. Parties must report status as events warrant and by January 7, 2021.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Trust is a "covered person" under the Partnership Agreement as a limited partner | Trust: received required partner consents and thus is a limited partner entitled to advancement | CGH: Trust is not a limited partner; federal court should decide | The Trust's limited-partner status is material, fact-intensive, disputed, and likely to be resolved in the Virginia Action; Delaware court stayed proceedings and deferred resolution |
| Whether Delaware action should proceed or be stayed in favor of the Virginia Action | Trust: Delaware court can proceed expeditiously and avoid conflict | CGH: stay/dismiss in favor of first-filed federal action to avoid duplicative litigation and inconsistent rulings | Court granted stay for reasons of efficiency, comity, and to avoid conflicting rulings |
| Whether the court can defer covered-person disputes to the indemnification phase (relying on Mooney) | Trust: court should defer unclear capacity questions to indemnification phase | CGH: dispute over covered-person status cannot be deferred where coverage is contested | Court distinguished Mooney (where covered-person status was not contested) and refused to defer here because covered-person status is disputed and fact-intensive |
| Whether Trust can be awarded advancement as an "agent" of Traditions to avoid limited-partner question | Trust: alternatively entitled to advancement as an agent | CGH: agency is disputed, intertwined with federal issues | Court declined to resolve agency claim now—agency is fact-fraught and intertwined with Virginia Action; not ripe while Virginia Action pending |
Key Cases Cited
- In re RJR Nabisco, Inc. S’holders Litig., 576 A.2d 654 (Del. Ch. 1990) (comity favors not exercising jurisdiction when earlier action arising from same transaction is proceeding)
- McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281 (Del. 1970) (general rule that litigation should ordinarily proceed in the forum where first commenced)
- Paolino v. Mace Sec. Int’l, Inc., 985 A.2d 392 (Del. Ch. 2009) (Court has inherent power to manage its docket and stay cases for comity, efficiency, or common sense)