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Finnegan v. Vbenx Corporation

Superior Court of Massachusetts, Suffolk

February 6, 2019

J. BRENT FINNEGAN, and others Plaintiffs
v.
VBENX CORPORATION, and others Defendants VBENX CORPORATION, and others Plaintiffs-in-Counterclaim
v.
J. BRENT FINNEGAN, and others Defendants-in-Counterclaim

          MEMORANDUM OF DECISION AND ORDER ON DEFENDANT-IN-COUNTERLCLAIM FINNIGAN’S MOTION FOR ADVANCEMENT OF FUNDS

          Mitchell H. Kaplan Justice

          Notwithstanding two trials (one jury waived and one jury trial) and one previous decision of the Appeals Court affirming the dismissal of all of plaintiff and defendant-in-counterclaim J. Brent Finnegan’s claims against all of the defendants (for simplicity collectively "VBenx") following the jury waived trial, this case is once again before the court--this time while Finnegan and co-defendant-in-counterclaim Kenneth F. Phillips appeal the judgment for monetary damages entered against them following the jury’s verdict in favor of VBenx on its counterclaims. Presently before the court is Finnegan’s motion for advancement from VBenx of attorney’s fees and expenses that he has incurred in prosecuting his appeal of the jury’s verdict and defending the discovery that VBenx has initiated in aid of recovery on its judgment. See M. R. Civ. P. 69. For the reasons that follow, Finnegan’s right to further advancement of his litigation expenses can only be determined after an evidentiary hearing to consider whether Finnegan has unclean hands as a consequence of engaging in fraudulent transfers and other actions undertaken to render himself judgment proof.

          PROCEDURAL BACKGROUND

         Finnegan filed his claims on September 4, 2009; VBenx filed its counterclaims on October 28, 2009. After much pretrial sparring, the Finnegan claims were severed from VBenx’ counterclaims and proceeded to trial, without a jury, on April 25, 2011 (Lauriat, J. presiding). The case was tried over twenty-five days, concluding on June 5, 2011. 819 exhibits were entered in evidence (6.5 feet of paper according to Judge Lauriat’s Memorandum of Decision). On October 19, 2012, the Court issued extensive Findings of Fact and Rulings of Law in which it ruled in favor of VBenx, dismissing all claims asserted against it. After further motions and hearings, on March 26, 2013, the Court entered a Separate and Final Judgment consistent with its Findings and Rulings. On May 3, 2013, Finnegan appealed; the Superior Court’s Judgment was affirmed by the Appeals Court on August 14, 2015. See Finnegan v. Baker, 88 Mass.App.Ct. 35 (2015).

          Following the entry of judgment in favor of VBenx on Finnegan’s claims, discovery and extensive motion practice commenced on VBenx’ counterclaims asserted against Finnegan and Phillips. Beginning May 17, 2017, the counterclaims were tried to a jury. It proceeded day-to-day for nine days. Ultimately, two counts were submitted to the jury: a claim for malicious prosecution principally directed at the claims that Finnegan and Phillips that were the subject of the jury waived trial; and claims for breach of Finnegan’s fiduciary duty due to VBenx and its shareholders during the period that Finnegan was the chief executive officer and a director of VBenx and Phillips was a director. As noted above, the jury found against Finnegan and Phillips on both claims. The amount of the judgment entered against them, plus accrued post-judgment interest, is approximately $1.8 million. Finnegan and Phillips filed notices of appeal from the judgment. It is the court’s understanding that the appeal has been briefed and argued and is under advisement in the Appeals Court.

          While the appeal was pending, VBenx began discovery in aid of satisfaction of its judgment, as permitted under M. R. Civ. P. 69. It requested documents and took depositions of Finnegan and Phillipps.

          THE ADVANCEMENT OF FINNEGAN’S LITIGATION COSTS

         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. Finnegan and Phillips delivered such an undertaking in February, 2013.

         Over the ensuing years, there has been much motion practice concerning Finnegan’s right to advancement. Disputes arose regarding whether expenses were incurred in connection with claims that were premised on his having been an officer and director of VBenx, as opposed to other tortious conduct, and whether the expenses for which he sought advancement were reasonable. In all, VBenx has advanced approximately $1 million to Finnegan. Under Delaware law, whether Finnegan is liable to repay all of the funds advanced will be determined after the pending appeal is decided. See See Sun-Times Media Group, Inc. v. Black, 954 A.2d 380, 405 (Del. Ch. 2008) (where the Delaware Chancery Court held that the appropriate point at which to address whether and how much of funds previously advanced by a corporation under § 145 (e) of the DGCL must be repaid is after there has been "a final, non-appealable conclusion to [the] proceeding" which gave rise to the obligation to advance funds.)

          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.

          EVIDENCE OF FRAUDULENT TRANSFERS AND CONCEALMENT OF ASSETS

          As the court understands it, the motion to order advancement of fees is brought only by Finnegan.[1] VBenx contends that discovery has revealed that while Finnegan represented to a lender in or about 2010 that he and his wife had assets with a value of nearly $20 million, he presently appears to have no, or virtually no, assets in his own name. According to VBenx, the brokerage and bank statements produced in post-judgment discovery show very little cash or securities in his name. A home owned by he and his wife in Palm Beach was sold in 2013 and another Palm Beach condominium purchased; however, the deed to that condominium was only in his wife’s name, although Finnigan appears to have paid the mortgage and tax on that property. It was recently sold for $3.5 million; but none of the proceeds of that sale appears to have gone to Finnegan. Finnegan recently also transferred a valuable property in Wolfeboro, New Hampshire to his wife for no consideration.

          DISCUSSION

          The question of whether VBenx must continue to advance litigation expenses to Finnegan is governed by Delaware corporate law, more specifically 8 Del. Code § 145 (§ 145). In Tafeen v. Homestore, Inc., 2004 Del.Ch. LEXIS 38 (Del. Ch., March 16, 2004) (Tafeen), Chancellor Chandler addressed a situation very much like that presented by Finnegan’s pending request for advancement. In Tafeen, Chancellor Chandler quickly disposed of the defendant corporation’s contention that plaintiff, the former CEO of defendant Homestore, had forfeited his right to advancement by virtue of the conduct that caused him to be a defendant in a number of civil actions and an SEC enforcement proceeding, all filed after it was revealed that Homestore had substantially overstated its revenues in the past reporting periods. However, Chancellor ...


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