OPINION
ACREE, Judge.
Suzanne Anderson (Mother) appeals a May 23, 2009 order of the Franklin Family Court denying her motion to modify timesharing. For the following reasons, we affirm.
During their brief marriage, Mother and Joseph Johnson (Father) resided in Frankfort, Kentucky. They had one minor child together. The parties divorced in 2002. In 2007, upon the parties' joint motion, the family court entered an order awarding custody of the child to the parties jointly with equal, but flexible, timesharing.
On April 6, 2009, Mother filed a motion for "an order modifying the timesharing schedule of the parties." (Appellant's motion, April 6, 2009). Mother's basis for seeking the modification was to make it easier for her "to relocate with the minor child to Paducah, Kentucky." Id. The timesharing schedule proposed by Mother would have significantly reduced Father's time with the child.
The issue before the family court was whether a modification of timesharing was in the child's best interests. KRS 403.320(3)("court may modify an order granting or denying visitation rights whenever modification would serve the best interests of the child"); see also Pennington v. Marcum, 266 S.W.3d 759, 770 (Ky. 2008)("if the Appellant was actually seeking only a modification of visitation/timesharing, the standard the court had to apply is what is in the best interests of the child.").
The family court conducted a hearing on Mother's motion which lasted several hours. Not long thereafter, the family court entered an order denying modification as follows:
[Mother] having filed a Motion to Modify Timesharing, which came before the Court for a hearing on May 4, 2009, the Court having heard testimony of both parties, the Court having heard testimony of the witnesses, the Court having reviewed the court record, and the Court being otherwise sufficiently advised, the Court hereby finds that it is not in the best interest of [the child] to relocate to Paducah, Kentucky. Therefore, [Mother's] Motion to Modify Timesharing is hereby DENIED.
(Order, May 23, 2009). Mother appealed that order to this Court.
"[T]his Court will only reverse a trial court's determinations as to visitation if they constitute a manifest abuse of discretion, or were clearly erroneous in light of the facts and circumstances of the case." Drury v. Drury, 32 S.W.3d 521, 525 (Ky. App. 2000). However, Mother does not argue either of these grounds. Instead, she asserts as error that "[t]he [family] court made no findings of fact." Consequently, the relief she seeks is not reversal; she instead asks this Court "to remand this case to the trial court with an order to make specific findings and to take such further proof as may be necessary." (Appellant's Brief, p. 7).
Father responds by quoting Kentucky Rule(s) of Civil Procedure (CR) 52.01 that "[f]indings of fact and conclusions of law are unnecessary on decisions of motions under Rules 12 or 56 or any other motion except as provided in Rule 41.02." CR 52.01. Mother's post-decree motion to modify visitation falls in the category of motions exempted by the quoted language. While Father's reading of the rule is technically correct, it does not fully illuminate how Kentucky's courts have come to apply CR 52 to post-decree motions in dissolution cases.
Our highest court has periodically indicated that CR 52.01 does not require the trial court to include findings of fact and conclusions of law when ruling on post-decree motions to modify. In LeBus v. LeBus, 408 S.W.2d 200 (Ky. 1966), the Court reviewed a trial court's order granting a motion to modify child support. The father presented four assignments of error, one of which was the trial court's "fail[ure] to make findings of fact as required by CR 52.01." LeBus at 201. Our former Court of Appeals said:
There is no merit in the contention that the order must be overturned because of the court's failure to make findings of fact. CR 52.01 specifically excepts rulings upon motions from its mandate. It would have been better practice for the trial court to make findings of fact, but the cited rule does not make it mandatory.
Id. at 202.
A few years later, in Clay v. Clay, 424 S.W.2d 583 (Ky. 1968), the Court reviewed an order granting a post-decree motion for approximately $6,400 in child support arrearage. The Court said the father's argument "that the trial judge failed to make findings of fact and conclusions of law is without merit. CR 52.01 exempts rulings on motions from its mandate for such findings of fact and conclusions of law." Clay at 584.
In its application of the motion exemption contained in CR 52.01, our highest court had, to that time, treated all post-decree orders the same whether those orders granted the post-decree relief sought or denied it. See, e.g., Powell v. Powell, 423 S.W.2d 896, 897-98 (Ky. 1968) (in "the trial court's denial of the relief sought by [the father] . . . [b]y the terms of CR 52.01, the trial court was not required to state its findings of fact and conclusions of law."). In 1974, the Court began distinguishing between post-decree orders granting relief and those in which the relief sought was denied.
In Burnett v. Burnett, 516 S.W.2d 330 (Ky. 1974), a father filed a post-decree motion to terminate both his maintenance obligation and his former spouse's right to occupy the marital residence. The motion was denied, and "[t]he order was not accompanied by findings of fact and conclusions of law." Burnett at 331. The father
concede[d] that the Civil Rules, CR 52.01, do not require findings on a motion to modify a divorce judgment, but he maintain[ed] that KRS 403.250, in authorizing modification of such a judgment in respect to support or maintenance only upon `a showing of changed conditions so substantial and continuing as to make the terms unconscionable,' by necessary implication requires findings of evidentiary facts in support of an order
granting or denying such a motion.
Id. at 332 (emphasis supplied). The Court found merit in the father's argument "
as concerns orders granting a motion to modify, because it cannot be determined whether the requirement of the statute as to a showing of a change of conditions was complied with unless the circuit court makes appropriate findings of evidentiary facts."
Id. (emphasis supplied).
Burnett, therefore, continued to hold that CR 52.01 does not require findings in orders entered upon post-decree motions to modify; however,
Burnett embraced a new rule, albeit in dicta — the extent to which findings of fact and conclusions of law are required in post-decree orders
granting a post-decree motion depends on the standard contained in the statute pursuant to which the motion was brought.
Id. This dicta was soon embraced by this Court in
Mullins v. Mullins, 584 S.W.2d 601 (Ky. App. 1979) where we said,
Burnett v. Burnett, Ky.,
516 S.W.2d 330 (1974), indicates that a trial court should make findings of fact when a motion for modification under KRS 403.250(1) is granted. This is true, although CR 52.01 might indicate contra. Unless the court makes appropriate findings of evidentiary facts, it cannot be determined whether the requirement of the statute as to a showing of change of conditions has been satisfied. The court did note, however, that CR 52.04 may require that a party request findings of fact in order to preserve the basis for a reversal or remand.
Burnett,
supra, 516 S.W.2d at 332, See n. 1.
Mullins at 603;
see also Klopp v. Klopp, 763 S.W.2d 663, 665 (Ky. App. 1988) ("Civil Rule 52.01 does not require a trial court to make findings on motions. Our case law, though, does require such findings in ruling on motions to modify dissolution judgments, at least when the court grants the motion.").
However, in Burnett, there was another more significant factor. The father's motion in Burnett was not granted. The motion was denied and the Court said that made a difference. The Court concluded
that findings are unnecessary under KRS 403.250 when the motion is denied. When such a motion is denied, the reason necessarily is that the movant did not sustain his burden of showing the required change of conditions. There is no need for findings of evidentiary facts, because the finding would simply be that the movant had not produced sufficient proof to require an affirmative finding of the facts on which he relied. So we find no error here in the failure of the circuit court to make findings.
Id. at 332.
While Burnett specifically addressed post-decree modifications under KRS 403.250, the reasoning is equally applicable to Mother's motion brought pursuant to KRS 403.320(3). To paraphrase Burnett, when such a motion is denied, the reason necessarily is that the movant did not sustain her burden of showing the "modification would serve the best interests of the child." KRS 403.320(3).
We draw from these cases, and particularly from Burnett, these three rules: (1) CR 52.01 does not require a trial court to make findings on post-decree motions whether they are granted or denied; (2) when a post-decree motion is granted, case law rather than CR 52.01 does require findings of fact and conclusions of law sufficient to address the standard contained in the statute pursuant to which the motion was brought; (3) when a post-decree motion is denied, neither CR 52.01 nor case law requires findings of fact or conclusions of law because implicit in the denial is the finding that the movant failed to produce sufficient proof to require an affirmative finding of the facts on which he relied.
We emphasize that Burnett and its progeny do not leave the unsuccessful post-decree movant without recourse.
We note first that Burnett does not deprive any party of the remedial provisions of CR 52. That is, even though CR 52.01 does not require findings on motions, nothing prevents a party from eliciting the trial court's discretion to enter findings by bringing a motion pursuant to CR 52.02. After all, Kentucky appellate courts continue to require the unsuccessful respondent to a post-decree motion to preserve error by complying with CR 52.04. See Louise E. Graham James E. Keller, 15 Kentucky Practice — Domestic Relations Law § 13:6 fn. 1-3 (2009).
Next, and more importantly, nothing prohibits an unsuccessful post-decree movant from appealing the denial of the motion on the grounds set forth in Drury, supra. Drury, 32 S.W.3d at 525. Drury makes it clear that orders denying post-decree motions, even without findings of fact and conclusions of law, do not inhibit appellate review; such orders will still be reversed "if they constitute a manifest abuse of discretion, or were clearly erroneous in light of the facts and circumstances of the case." Id.
Unfortunately, Mother pursued neither of these courses. Instead, she is asking this Court to order the family court to do that which CR 52.02 empowered her to ask the family court directly. We decline to do so.
Our Supreme Court adopted CR 52 ( i.e., CR 52.01 to CR 52.04) because it recognized that a trial court is best suited to provide the type of relief Mother seeks. The requirement in CR 52.04 that litigants first use CR 52.02 as a prerequisite to pursuing relief in the appellate courts is wise and beneficial for a number of reasons. First, requiring the use of CR 52.02 assures that reconsideration of an order or judgment occurs when the trial court is most familiar with the issues and the evidence. This increases the likelihood of a just final result. Second, use of CR 52.02 is the most expeditious way for litigants to obtain the relief Mother seeks. This increases the odds that a final result will be swift as well as just. Third, use of the rule can yield an order or judgment that is either more satisfactory to both parties or less assailable on appeal, thereby reducing the possibility that resort to this Court will be necessary. This preserves judicial resources and likely lowers the parties' costs. Fourth, use of CR 52.02 gives the trial court the opportunity to refine or elaborate upon its reasoning in the case. This allows for more effective appellate review when resort to this Court is necessary. All these reasons justify, in any case, the requirement that the family court be given the first opportunity to consider making additional findings before this Court is asked to order them. The case before us is no exception.
Giving credit where it is due, we note that while CR 52.01, 52.02, and 52.03 are taken from Federal Rules of Civil Procedure 52(a) and 52(b), Kentucky's CR 52.04 is an original creation of our former Court of Appeals.
Rule 52.04, adopted in 1973, effective March 1, 1974, is original and has no counterpart in the Federal Rules. It was designed to solve a practical problem of appellate review when a party wishes to raise the point that the failure of the trial court to make findings constitutes reversible error.
Kurt A. Philipps, Jr., David V. Kramer and David W. Burleigh, 7 Kentucky Practice — Rules of Civil Procedure Annoted Rule 52.04 (6th ed. 2009).
In our case, the Franklin Family Court denied Mother's motion to modify visitation. According to Burnett, the family court was not required to enter any findings of fact or conclusions of law. We, therefore, must affirm the order absent controlling authority to the contrary. Mother cites as that controlling authority McFarland v. McFarland, 804 S.W.2d 17 (Ky. App. 1991), because she believes the case is "on all fours" with her case. We disagree.
The mother in McFarland sought review of a decree, entered after a contested dissolution hearing, which granted custody of the children to the father; the mother was not seeking review of an order denying relief she sought pursuant to a motion. Therefore, the exemption as to motions contained in CR 52.01 was not at play in McFarland as it is in the case before us.
Furthermore, in McFarland not only did the trial court make no findings in support of its custody award, the court also failed to apply the best-interests-of-the-child standard. McFarland at 18. True, we will reverse an order granting a motion to modify visitation if the family court fails to "address the threshold inquiry of the children's best interests and ma[kes] no findings in support of that ultimate fact in accordance with K.R.S. 403.320(2) [recodified in 1992 as KRS 403.320(3)]." Hornback v. Hornback, 636 S.W.2d 24, 26 (Ky. App. 1982) (emphasis supplied). This is because whether modification of visitation would serve the best interests of the child is the "conclusory or ultimate fact to be found as required by the statute" and which the family court was required to determine. Id. It is clear in the case sub judice that the Franklin Family Court did consider the proper standard — the best interests of the child — and did enter a finding on the ultimate fact that modification of visitation was not in the child's best interest.
Technically speaking, the family court's order determined that "it is not in the best interest of [the child] to relocate to Paducah, Kentucky," indicating the court's adherence to the proper standard. We therefore construe this determination as indistinguishable from the ultimate issue before the family court — whether modification of visitation was in the child's best interest. Under Burnett, the denial of the motion itself is sufficient to permit appellate review based on the standard established in Drury, supra.
Finally, in addition to failing to consider the best-interests-of-the-child standard, the trial court in McFarland failed to "consider all relevant factors including those specifically enumerated in KRS 403.270(1) in determining the `best interests of the child.'" Id. at 18. There were no additional enumerated factors in KRS 403.320(3) for the Franklin Family Court to consider. Both McFarland and Burnett hold, without regard to the applicability of CR 52.01, that the extent to which findings must be included in the court's determination is established by the applicable statute. To that extent, these cases are in harmony.
In sum, Mother's reliance on McFarland is unavailing, and we are compelled to affirm the Franklin Family Court's order.
In so finding, however, we do not intend to encourage minimalism in the drafting of orders. As even the Court in LeBus, supra, stated, "[i]t would have been better practice for the trial court to make findings of fact, but the cited rule does not make it mandatory." LeBus, 408 S.W.2d at 202.
Additionally, we are sympathetic to the concern expressed in dicta by another panel of this Court "urg[ing] our Supreme Court and Rules Committee to review and revise CR 52.01." McKinney v. McKinney, 257 S.W.3d 130, 135 (Ky. App. 2008). That panel noted,
Many motions require a court to try the issues upon the facts. To hold that a trial court is not obligated to make findings of fact when ruling on a motion of any kind
except as provided in CR 41.02 [footnote omitted] necessarily deprives litigants of an understanding of the order or judgment, as well as inhibits any type of meaningful appellate review.
Id. To a large degree, however, the evolution of Kentucky's domestic relations jurisprudence, as outlined herein, has addressed this concern by requiring post-decree orders granting modification to contain findings sufficient to satisfy the standard in the statute pursuant to which the motion is brought, and by holding that findings are unnecessary when the post-decree motion is denied.
Because we find no error in the May 23, 2009 order of the Franklin Family Court, we affirm.
BUCKINGHAM, SENIOR JUDGE, CONCURS AND FILES SEPARATE OPINION.
TAYLOR, CHIEF JUDGE, DISSENTS AND FILES SEPARATE OPINION.
BUCKINGHAM, SENIOR JUDGE, CONCURRING:
The only issue before this court is whether the trial court erred in regard to findings of fact. Any question concerning alleged error by the court in addressing the merits of the appellant's motion is not before this court.
I agree that findings of fact and conclusions of law were unnecessary. "Findings of fact and conclusions of law are unnecessary on decisions of motions under Rules 12 or 56 or any other motion except as provided in Rule 41.02." CR 52.01. I also agree that the appellant's reliance on the McFarland case is unavailing. As has been noted, McFarland involved an appeal from a custody decree, and this case involves an appeal from an order denying a motion to modify timesharing. Thus, I agree that the trial court's order in this case is exempt from the portion of CR 52.01 that requires findings of fact in "all actions tried upon the facts without a jury."
I disagree with the dissent that the Reichle case mandates that trial courts must make findings of fact and conclusions of law in deciding post-decree modification motions. While the court in Reichle did state that CR 52.01 applies to custody cases, that case, like McFarland, involved an initial custody determination. I conclude that the language of the court therein contemplated only such determinations or decrees and did not refer to motions to modify as well.
Reichle v. Reichle, 719 S.W.2d 442 (Ky. 1986).
The dissent states that the majority denies appellate review to the appellant pursuant to CR 52.04 because she failed to file a motion for additional findings pursuant to CR 52.02. I do not read the majority opinion in that manner. Rather, the majority opinion simply affirms the trial court's order because the trial court was not required to make findings of fact and conclusions of law. The appellant did not ask for appellate review of the trial court's order on its merits. Had the appellant asked for a review of the order on its merits, I conclude we would have been required to do so regardless of whether she moved the court for additional findings or not.
TAYLOR, CHIEF JUDGE, DISSENTING:
Respectfully, I dissent. The majority concludes that CR 52.01 does not require a circuit court to make findings of fact on post-decree motions regardless of whether the motion is granted or denied and that applicable case law requires findings of fact and conclusions of law only if the post-decree motion is granted. I believe the majority's interpretation of CR 52.01 is in error and the applicable case law analysis flawed for several reasons.
First, this case involves modifications pertaining to child visitation orders. Accordingly, I do not believe that either Burnett or Mullins, upon which the majority relies, is applicable since both involve post-decree modifications pertaining to maintenance. As provided for in KRS 403.250, the requirements for post-decree modifications of maintenance are substantially different than modifications pertaining to child visitation under KRS 403.320. The primary consideration in obtaining maintenance modification is changed circumstances whereas the primary consideration in modification of child visitation is always the best interests of the child. KRS 403.320(3). For the purpose of determining the best interests of the child, our Courts have inferred from this statute that an evidentiary hearing is required for making the best interests determination. McNeeley v. McNeeley, 45 S.W.3d 876 (Ky. App. 2001); Pennington v. Marcum, 266 S.W.3d 759 (Ky. 2008).
Second, I believe post-decree child visitation modification proceedings are more closely akin to child custody modification proceedings as provided under KRS 403.340, which also requires that any modification must be in the best interests of the child. In Reichle v. Reichle, 719 S.W.2d 442 (Ky. 1986), the Kentucky Supreme Court specifically held that CR 52.01 applied to child custody cases and that "the findings of fact are particularly important in such situations." Id. at 444. The Supreme Court makes no distinction in whether a motion is granted or denied.
In Reichle, the parties were married six months before getting a divorce. They later resumed cohabitation, which resulted in the birth of a child out of wedlock. The child lived with the mother for six years when the father initiated proceedings, post-decree, to obtain custody of the child. The father's motion was denied, which subsequently was reversed the by Court of Appeals. In reversing the Court of Appeals, the Supreme Court applied CR 52.01, despite the father's motion having been denied below. Therein, the Supreme Court stated the obvious:
One of the principal reasons for the rule [CR 52.01] is to have the record show the basis of the trial judge's decision so that a reviewing court may readily understand the trial court's view of the controversy.
Reichle, 719 S.W.2d at 444. Accordingly, I believe under Kentucky case law, including the mandate of
Reichle and its progeny, that CR 52.01 is applicable to any post-decree modification motion that involves a determination of the best interests of the child, including visitation modification proceedings.
Third, I believe the majority's historical analysis regarding the application of CR 52.01 and its exclusion of "motions" from the findings of fact requirement is also flawed. CR 52.01 was adopted effective July 1, 1953. Kentucky's no-fault dissolution statutes (KRS 403.110 et seq.) were enacted by the Kentucky General Assembly in 1972. I believe the language in the post-decree modification statutes, as pertains to visitation and child custody (KRS 403.320(3) and KRS 403.340), reflects a legislative intent that contemplates courts conducting evidentiary proceedings to determine whether modification is in the best interests of the child. Likewise, I do not believe Kentucky's highest court, in adopting CR 52.01, contemplated that post-decree modification motions enacted some twenty years later would be outside the scope of CR 52.01. As noted earlier in Reichle, the Kentucky Supreme Court explicitly stated that CR 52.01 was applicable to child custody proceedings. However, the focus of the majority gets hung up on the distinction of whether the motion for modification is granted or denied, to justify whether findings are required under CR 52.01. While there may be some legal precedent for such an analysis in maintenance proceedings, there certainly exists no binding precedent to support such a position as pertains to child visitation or child custody proceedings. If the circuit court conducts evidentiary hearings which are subject to the mandate of CR 52.01, it should make absolutely no legal difference whatsoever whether the modification motion is granted or denied. The analysis and legal reasoning in any ruling by a circuit or family court will be the same regardless of whether the modification motion is granted or denied. Unless findings of fact are provided by the circuit or family court, our Court simply has no ability to conduct an adequate and intelligent appellate review. Appellate courts should not be placed in the position of having to read the mind of a circuit or family court judge to determine the basis for the judge's ruling.
In interpreting CR 52.01, the former Kentucky Court of Appeals, the predecessor to the Kentucky Supreme Court, addressed this very issue in Elkins v. Elkins, 359 S.W.2d 620 (Ky. 1962), after the adoption of CR 52.01. In Elkins, a woman attempted to modify a child support agreement that had been entered into with the father of the children in conjunction with the divorce. The circuit court denied the mother's motion to modify the child support agreement. In reversing the circuit court by applying CR 52.01, despite the mother's motion having been denied, Judge Palmore made the following eloquent observation regarding the necessity of findings of fact in post-decree modification proceedings:
The applicable child support law in effect when Elkins was decided (1962) was prior to the enactment of no-fault divorce statutes in 1972.
The order from which this appeal is taken neither contains findings of fact nor discloses the basis on which the trial court's decision was made. This is unfortunate, for a losing party ought not to be deprived of a proper review by the court's failure to record its specific rulings of law and fact. By its failure to conform with
CR 52.01 a record that leaves us in the dark in this respect inevitably conduces to a substitution of our own judgment for that of the trial court.
Id. at 622.
To the extent that our courts have strayed in their interpretation and application of CR 52.01, I believe those decisions are distinguishable or otherwise simply in error. In recent years, the interpretation and application of CR 52.01 has generated substantial discussion and confusion by both the bench and bar regarding its interpretation and application. Another panel of this Court recently criticized any limitation of CR 52.01 to post-dissolution decree motions. In McKinney v. McKinney, 257 S.W.3d 130 (Ky. App. 2008), Judge Dixon made the following astute observation:
However, we are also of the opinion that
CR 52.01, as currently written, is not only overbroad but illogical. The majority of orders and judgments from the trial court originate from a motion. Many motions require a court to try the issues upon the facts. To hold that a trial court is not obligated to make findings of fact when ruling on a motion of any kind except as provided in
CR 41.02 necessarily deprives litigants of an understanding of the order or judgment, as well as inhibits any type of meaningful appellate review. We would urge our Supreme Court and Rules Committee to review and revise
CR 52.01.
Id. at 135 (footnote omitted). Given that the majority in this case has limited the proper application of CR 52.01 to a post-decree modification proceeding, I concur totally with Judge Dixon's observation.
Finally, I believe the majority has totally misinterpreted and misapplied CR 52.04 in this case. Assuming that CR 52.01 were applicable to this case, once a circuit court conducts evidentiary proceedings, the rule requires that the court shall state specific findings of fact andshall further state separate conclusions of law in rendering the appropriate judgment. In this case, the family court failed to make any findings of fact whatsoever for this Court to review. The order on appeal simply stated that the family court found that it was not in the best interests of the child to relocate to Paducah, Kentucky. While this may be a conclusory finding, it is not supported by any analysis or findings regarding the statutory requirements set forth in KRS 403.320. The requirement for making findings of fact is mandatory for proceedings pursuant to CR 52.01. Brown v. Shelton, 156 S.W.3d 319 (Ky. App. 2004). In my opinion, CR 52.04 is not triggered until the family court makes findings of fact but otherwise fails to make adequate findings or does not address an issue that a party believes should be addressed in the findings. Thereupon, the failure to make adequate findings of fact must be brought to the circuit court's attention by a motion for more definite findings under CR 52.04 or the error is considered waived. Cherry v. Cherry, 634 S.W.2d 423 (Ky. 1982).
This is totally distinguishable from the case now on appeal where the family court has failed to make any findings of fact which I believe results in reversible error regardless of whether a CR 52.04 motion was filed. Brown, 156 S.W.3d 319. In other words, a party is not required to ask for additional findings if the circuit court fails to make findings that are mandatory under CR 52.01. Here, the majority has denied appellant a review on the merits because she failed to file a motion under CR 52.04. The majority cannot have it both ways. If CR 52.01 is not applicable, as the majority holds, because appellant's motion was denied, then CR 52.04 cannot be applied independent of CR 52.01, which the majority has done in this case. However, if CR 52.01 is applicable, then findings of fact were mandatory which, as noted, were not made by the family court. Contrary to the majority's position, the failure to make findings under CR 52.01 is reversible error as a matter of law. See Brown, supra.
For these reasons I would reverse and remand to the Franklin Family Court for further proceedings in conformance with CR 52.01 and KRS 403.320(3).
< page-number="27" id="p27">an were excessive to the point of constituting bad faith when compared to those charged by the defendant's counsel: "For representing a single witness who appeared for a single day at the SEC, [the plaintiff's firm's] bills rival those of [the defendant's firm] for representing 15 witnesses and responding to 20 separate SEC document requests."
Thus, the reasonableness inquiry turned on the specific law firm's efficiency and not on what other firms in the same area were charging.
2004 WL 1921249, at *5.
Id.
The third Delphi inquiry focuses on whether the firm has charged the party seeking indemnification what it would charge another client for the same or comparable services under comparable circumstances. IAC emphasizes that Hunt Gross charged O'Brien 20% more than what a "peer firm in the Boca Raton area" would have charged, or what Hunt Gross would have charged another client. To its point, IAC argues that, assuming "the firm's usual rates are reasonable, a 20% premium on those rates is per se unreasonable." This position, however, has no merit. IAC ignores the possibility that a 20% or greater premium over a firm's standard rate might be appropriate in specific circumstances, such as in the case of a contingent fee agreement where the law firm might not recover any fees at all if it is not successful in the litigation. Here, there is no evidence, or even any allegation, that O'Brien's counsel acted in bad faith or charged O'Brien for obviously excessive hours in comparison to the fees incurred by his adversary as was the case in Kaung. Thus, the fees charged by O'Brien's counsel were not excessive in terms of the hours worked or the base rate they normally charge to other clients in circumstances comparable to O'Brien's. The dispute pertains to the reasonableness of the contingent basis for the fees.
DOB 30.
DRB 11.
Id.
b. The basis on which O'Brien's counsel charged fees was generally comparable to that for other clients
In its reply brief, IAC also contests the basis on which O'Brien's counsel charged fees. According to IAC, the record "does not support O'Brien's assertion that the `uncontroverted evidence' proves he did not have the money to pay his attorneys on the standard pay-as-you-go basis." O'Brien, who IAC asserts is "a person of considerable means," provided no evidence of his net worth and refused to answer an interrogatory seeking his income for the years 2006-2008. Thus, according to IAC, O'Brien entered into the contingency arrangements with his counsel not because of economic need, but on the basis of calculated risk allocation.
Id.
Id.
Even assuming that is true, however, and there is no showing of need, I am not persuaded that a contingency arrangement calling for a modest success premium is per se unreasonable in the case of officers or directors seeking indemnification from their corporations.
In arguing for such a per se prohibition, IAC purports to distinguish two Florida cases cited by O'Brien as supporting the reasonableness of his indemnification claim. In particular, IAC contends that the Florida Supreme Court did not hold in either of those cases "that a contingency arrangement entered into by a litigant and his attorney could be imposed on a third party payor." Yet, those cases do not hold that contingency premiums may never be imposed on third parties; in fact, they appear to hold the opposite.
See Fla. Patient's Comp. Fund v. Rowe, 472 So. 2d 1145, 1151 (Fla. 1985); Bell v. U.S.B. Acq. Co., 734 So. 2d 403, 411-12 (Fla. 1999).
Id. at 16-17.
For instance, Bell states that "even without a [fee] multiplier, the court would be authorized to award a greater fee based on the contingent nature of the fee agreement." 734 So. 2d at 411. In that regard, Rowe states only that an award of attorneys' fees should not "exceed the fee agreement reached by the attorney and his client." 472 So. 2d at 1151.
Regardless, IAC raises a valid policy concern. While contingency arrangements allow litigants to assert and maintain meritorious claims and defenses that otherwise might not be pursued, contingency fees in successful indemnification actions are borne by third parties who typically would have had no voice in fee negotiations between the indemnified litigant and his or her counsel. In such circumstances, IAC suggests that there is a greater risk that counsel will request and the litigant may agree to an unreasonable contingency arrangement. This Court has held, however, that the right to indemnification "is not a blank check for corporate officials. . . ." Thus, any threat of abuse is mitigated significantly by the Court's role as the final arbiter of the reasonableness of fees sought in an indemnification action. In each case, as here, the court must determine whether the particular fee arrangement is reasonable under the circumstances; therefore, a court is not likely to uphold a contingency arrangement that takes advantage of third party payors.
May v. Bigmar, 838 A.2d 285, 288 (Del. Ch. 2003).
See id. at 289 ("The touchstone for awarding fees in an indemnification action is reasonableness.").
In this case, the challenged contingency arrangements were entered into because PRC and then IAC refused to advance O'Brien his fees and expenses or to indemnify him pursuant to the Indemnification Agreement. As to the advancement, IAC could have paid those expenses with manageable risk, as the terms of the Indemnification Agreement required O'Brien to return the advanced amount if it turned out that he was not entitled to the money. This case also involved a second contingency, however, that is more atypical. IAC refused to indemnify O'Brien at all regarding the PRC Arbitration based on what ultimately proved to be a misreading of the arbitration award. The fact that IAC's interpretation of that award initially prevailed in the Florida Trial Action complicated the situation in terms of the risks attendant to pursuing O'Brien's claim. In these circumstances, IAC is in no position to complain that the fee arrangements entered into by O'Brien and his attorneys — arrangements precipitated by IAC's own actions — are per se unreasonable to the extent they include any contingency or success premium.
Pl.'s App. Ex. 3 § 2(b); see also Pl.'s App. Ex. 8 (O'Brien's demand letter, which states he would repay PRC for expense advances to which he was not entitled).
As previously discussed, O'Brien actually incurred the claimed legal fees and will be responsible for all of those fees, if he ultimately succeeds on the merits of his claim. The services O'Brien's counsel rendered were thought prudent and appropriate in their good faith professional judgment, and the firms involved charged at rates similar to those charged to other clients in comparable situations. I also find the fact that O'Brien's counsel agreed to make certain of these fees contingent on their success does not render them unreasonable. Thus, O'Brien is entitled to at least some portion of the premium fees charged by his law firms.
Hunt Gross and Martin Chioffi both charged the equivalent of 20% success fees, while Kelley Drye charged a 100% premium. A generous contingency arrangement may be justified by the risk assumed by a particular law firm in a specific case. Here, however, O'Brien has not shown why one of his three firms should receive a premium five times larger than the other two. With the exception of the PRC Bankruptcy and a portion of the Delaware Action, for example, Hunt Gross and Kelley Drye participated in the same matters and presumably were subject to the same risk. Moreover, O'Brien presented no evidence that Kelley Drye routinely charges premium fees of this magnitude.
I hold, therefore, that O'Brien is entitled to be indemnified for the entire success or premium portions of the Hunt Gross and Martin Chioffi fees, which was 20% beyond the standard rate in the case of Hunt Gross and a premium of $200 per hour in the case of Martin Chioffi. I consider the 20% premium effectively charged by these two firms commensurate with the risks of failure, the inability to recover any fee in the case of Hunt Gross, and the loss of the time value of money in that the firms performed the work in question well before they could expect to be paid.
By the time Martin Chioffi entered the picture, IAC was advancing O'Brien their fees at the allegedly reduced rate of $380 per hour. Gregory asserts that O'Brien's arrangement with Martin Chioffi called for a premium of $200 per hour if he succeeded on his claim. This roughly equates to $100 per hour to get back to Gregory's normal hourly rate at Martin Chioffi and a premium of $100 per hour or 20.83%.
I also hold that O'Brien has failed to meet his burden of proof in demonstrating that a 100% premium is warranted in the case of Kelley Drye. I find, instead that a premium of 50% is reasonable. A premium greater than that obtained by the other two firms is appropriate in this case, because Kelley Drye apparently took the lead in attempting to secure O'Brien's vigorously contested indemnification rights, especially in the Florida Trial and Appellate Actions. That issue is critical to O'Brien's prospects for success in this matter. In addition, Kelley Drye undertook the risk of recovering no fee at all, and that attendant to deferring the date of payment until years after they performed the underlying services. Thus, as to the fees charged by Kelley Drye, I award O'Brien an amount equal to 150% of their standard fees and deny his request for 200% of that fee. In all cases, the premium is only on the actual legal fees incurred and not on expenses.
D. Fees Attributable to O'Brien's Affirmative Claims in the PRC Arbitration Should Be Cut From the Award
The next issue is whether and to what extent the legal fees and expenses requested by O'Brien in connection with the PRC Arbitration should be reduced to account for the fees and expenses attributable to the affirmative claims for relief he asserted in the PRC Arbitration. I hold that O'Brien is entitled to the amount he requested, less a 10% reduction based on his affirmative claims.
O'Brien's Indemnification Agreement provided that PRC, and, through its assumption of PRC's indemnification obligation, IAC, "shall indemnify [O'Brien] for Expenses to the fullest extent permitted by law if [O'Brien] was or is or becomes a party to . . . or is threatened to be made a party to . . . any Claim" related to the fact that O'Brien is or was an officer of PRC. Delaware law grants corporations the power to indemnify any person who was or is a party to an action " by reason of the fact that the person is or was a director, officer, employee or agent of the corporation." A lawsuit alleging that a director breached his fiduciary duty to his corporation, like the PRC Arbitration did, exemplifies an action for which a defendant is a party "by reason of the fact" he was a director of the corporation. In contrast to that situation, a plaintiff litigating a claim for breach of his own employment contract generally is not a litigant "by reason of the fact" he was a director, officer, or even an employee of the corporation.
Pl.'s App. Ex. 3 § 2(a). The Indemnification Agreement defines Claim as "any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other." Id. at § 1(b).
8 Del. C. § 145(a) (emphasis added). See also Pl.'s App. Ex. 3 § 1(d).
See, e.g., Weaver v. Zenimax Media, Inc., 2004 WL 243163, at *3 (Del. Ch. Jan. 30, 2004) (observing that corporate officers signing employment contracts are "acting in a personal capacity in an adversarial, arms-length transaction").
O'Brien concedes that the declaratory claims he brought in the PRC Arbitration were related to his claim for breach of his employment contract and that he is not seeking indemnification for any fees incurred in pursuing these declaratory claims. O'Brien contends, however, that only a miniscule amount of the time his counsel billed during the Arbitration was for the declaratory claims. Specifically, O'Brien asserts that the fees attributable to his declaratory claims are at most $1,735. IAC, on the other hand, urges the Court to indemnify O'Brien for only 50% of all fees associated with the Arbitration, thereby implying that O'Brien devoted fully half his time and effort to his affirmative claims. Both positions are highly implausible.
PAB 28.
Id.
According to O'Brien, his counsel spent a total of only five hours on his affirmative declaratory claim: two hours preparing eight requests for production and one interrogatory and three additional hours drafting his declaratory claim and researching issue preclusion. As IAC notes, this amounts to a mere 0.127% of the total 3,944 hours worked, or 0.14% of the $1.2 million O'Brien's counsel billed for the PRC Arbitration. Based on the importance of O'Brien's declaratory claim and issue preclusion concerns, I find unreliable the assertion that his counsel spent only five hours on these matters combined. On the other hand, it is plausible that the vast majority of time related to the declaratory claim involved work that was useful in both O'Brien's indemnification and employment claims. In that regard, I give some, but not complete, credence to O'Brien's contention that "if [he] had not asserted his Declaratory Claim, Hunt Gross would have still performed all of the services and work it did amounting to 3,939 hours. . . ." Moreover, it is nearly impossible to determine from the three volumes of invoices provided by O'Brien the degree of overlap existing among the issues regarding his affirmative claims and the remainder of the PRC Arbitration.
Id. at 31.
DRB 17.
PAB 32.
In the end, O'Brien has the burden of establishing how much of his total fees qualify for indemnification. In May v. Bigmar, the court considered what a plaintiff would have to do "to meet her burden of submitting a `good faith estimate' of her claim for indemnification." As in this case, May dealt with determining how much of a total indemnification request was attributable to one issue. The plaintiff indemnitee's approach was to attribute time and expenses to matters qualifying for indemnification unless there was a specific basis to exclude them, whereas the defendant excluded time and expenses unless a specific reason existed to include them. The court lamented that the time records of plaintiff's counsel "were not kept in a way [permitting] easy segregation of time." Still, the court stated that "[w]hile greater detail in contemporaneous record keeping is obviously helpful where a claim for partial indemnification is made, the court is not persuaded that the failure to keep better records should lead to the disallowance of the claim." Thus, the court in May adopted the plaintiff's approach, but also exercised "its own judgment and discretion to apply a 30% discount to the total fees arrived at after elimination of time devoted exclusively to the [disputed issue], as opposed to the 15% discount suggested by [plaintiff's] counsel."
May, 838 A.2d at 290.
Id. at 290.
Id.
Id. at 291.
Here, the piddling reduction of only $1,735 suggested by O'Brien is plainly inappropriate. By the same token, however, neither the record developed on the pending motion nor O'Brien's counsel's failure to keep better records supports the drastic 50% reduction sought by IAC. In keeping with May and based on my review of the available evidence, therefore, I hold in the exercise of my informed discretion that the indemnification amount requested by O'Brien for fees related to the PRC Arbitration should be reduced by 10% to account for the time devoted to his affirmative claims.
At argument on the pending motion, IAC's counsel stated that he sought some "recognition from the Court that [the amount attributable solely to the affirmative claims] can't be $5,000 [revised to $1,735]. It has to be some — I don't know whether it's 50 percent or 40 percent or 30 percent or 20 percent or 10 percent." May 26, 2010 Tr. 38.
E. Fees Attributable to O'Brien's Affirmative Claims in the PRC Bankruptcy Should Be Cut From the Award
IAC also argues for a reduction of the indemnification amount O'Brien seeks for the PRC Bankruptcy to back out the fees attributable to his pursuit of affirmative claims in that action. IAC contends that O'Brien's employment claim in the PRC Bankruptcy was of much greater value than his indemnification claim, and he, therefore, had more incentive to segregate those fees in that proceeding. O'Brien's counsel did not segregate the fees, however, and claim that virtually none of the time billed in connection with the Bankruptcy was spent pursuing O'Brien's affirmative claim.
DOB 35.
Pl.'s App. Ex. 42, Gregory Dep. 48.
O'Brien avers that preparing the proof of claim in the PRC Bankruptcy "did not require much work on Kelley Drye's part inasmuch as it already knew, from its intimate involvement in the Florida proceedings, the nature and value of O'Brien's indemnification rights." Of the total claimed for the PRC Bankruptcy, O'Brien asserts that, at most, a reduction of $2,500 (less than 4.4%) is appropriate and points to one paragraph in his Response to Debtor's Objection to Proof of Claim as all that should be attributed to his employment claim. That paragraph indicates that O'Brien ultimately conceded that his employment-related claim in the PRC Bankruptcy was limited to one year's salary and benefits, a total of $570,000.
Id. at 34.
See PAB 36.
See id. The paragraph states: "The balance of the Claim relates to damages incurred as a consequence of the formation of O'Brien's employment and Debtor's wrongful deprivation of O'Brien's stock option rights. O'Brien concedes that these claims relate to the termination of the employment relationship and are subject to the cap under 11 U.S.C. § 502(b)(7), and thus are limited to one year's salary and benefits, a total of $570,000."
This argument is undermined, however, by the admission of O'Brien's counsel Gregory that the $1.1 million allowed claim was derived through "back-and-forth negotiation." I infer from this evidence that some portion of the negotiations related to the employment claim. I also note that O'Brien initially sought approximately $2 million in the PRC Bankruptcy based on his indemnification claims. Thus, his total claim was in the range of $2.57 million of which $570,000 or just over 22% was attributable to his employment claim. Ultimately, O'Brien accepted $1.1 million for his PRC Bankruptcy claims. The record does not indicate, however, how much of that amount was attributable to the employment claim, but it could not have been more than $570,000 at the most. As with the fees and expenses associated with his affirmative claims in the PRC Arbitration, O'Brien has the burden of proving the amount of the fees related to the PRC Bankruptcy that qualify for indemnification. Based on the evidence presented, and especially the relative importance of the employment claim in relation to the indemnification claim, I find that a reduction of 20% in the amount of indemnification O'Brien has claimed is in order. Accordingly, in the exercise of my informed discretion, I order that the indemnification amount claimed for the PRC Bankruptcy be reduced by 20% to account for the time and expense related to the pursuit of O'Brien's affirmative claims.
Pl.'s App. Ex. 42, Gregory Dep. at 53.
See id. at 49-55.
F. O'Brien is Entitled to Prejudgment Interest on His Indemnification Award
O'Brien next claims and IAC concedes that O'Brien is entitled to prejudgment interest on the amount of indemnification awarded because in Delaware prejudgment interest is awarded as a matter of right. The primary issue in dispute is when such interest starts to accrue. O'Brien contends that for expenses incurred before January 2003 interest should begin accruing on January 23, 2003, which is ten business days after he first demanded advancement from PRC pursuant to the Indemnification Agreement, and for expenses incurred thereafter on the dates they were paid. IAC argues that interest should not begin to accrue until March 6, 2008, which is when O'Brien first made a demand on IAC, as opposed to PRC.
See PAB 45.
Moskowitz v. Mayor Council of Wilm., 391 A.2d 209, 211 (Del. 1978).
PAB 45.
DOB 36.
According to IAC, prejudgment interest on § 145 claims does not begin to accrue until the plaintiff has requested indemnification and "the defendant has, without justification, refused to live up to its obligation to make payment." That is, two separate conditions must be met: the plaintiff must have made a demand on the defendant and the defendant must have unjustifiably refused payment. IAC's argument is, effectively, that because O'Brien did not make demand on it until March 6, 2008, it could not have refused payment until that date, so prejudgment interest cannot have accrued before that time.
DOB 36 (quoting Citrin v. Int'l Airport Ctrs. LLC, 922 A.2d 1164, 1167 (Del. Ch. 2006)).
O'Brien emphasizes that the Merger Agreement provides that IAC "shall, and shall cause [PRC] to, expressly assume and honor in accordance with their terms all indemnity agreements," including O'Brien's. According to O'Brien, therefore, IAC unjustifiably refused to indemnify his attorneys' fees in January 2003 because it was required to cause PRC to honor O'Brien's Indemnification Agreement at that time. O'Brien further contends that IAC cannot now hide behind the corporate form because it was fully aware of O'Brien's request for indemnification in 2003 and, in fact, controlled PRC's attempts to avoid its indemnification obligations.
Pl.'s Ex. 4 § 5.8(c).
I agree with O'Brien on this point. The Merger Agreement obligated IAC to cause PRC to honor its indemnification obligations to O'Brien. When IAC caused PRC to refuse to indemnify O'Brien and, in fact, to challenge O'Brien's right to indemnification through several levels and years of court proceedings, IAC, in effect, unjustifiably refused to live up to its obligation to pay O'Brien's indemnification expenses.
The question still remains, however, whether a demand for indemnification directed to a subsidiary may qualify as a demand against a parent. IAC argues that "[i]n seeking interest dating from when PRC refused to make payment, O'Brien ignores the corporate form and conflates PRC with IAC based on IAC's status as the parent company of PRC." I find, however, that the demand on PRC satisfies any requirement of a demand on IAC in the specific circumstances of this case. While this Court does not lightly ignore the corporate form, I consider it appropriate here because of the contractual obligations of IAC to cause PRC to meet its indemnification obligations and the harm O'Brien would suffer if I applied the law with mindless literalism. Were O'Brien's claims here against PRC, instead of IAC, PRC clearly would owe him interest from January 23, 2003, ten business days after it received a demand for advancement and indemnification. The only reason O'Brien has not received this interest from PRC is because five years after O'Brien's demand for indemnification, O'Brien obtained a judgment against it, and shortly thereafter, PRC filed for Bankruptcy. During that five-year period, IAC controlled PRC and caused it to refuse to indemnify O'Brien and lodge a number of legal defenses against his claims for indemnification. IAC and PRC ultimately failed in their attempts to thwart those claims. O'Brien's success in proving his entitlement to indemnification from PRC also would have entitled him to prejudgment interest from the date of his demand on PRC, had PRC not filed for bankruptcy. Because IAC played an important role in delaying O'Brien's ability to obtain the indemnification to which he is entitled and prejudgment interest generally is awarded from the date of a demand for indemnification, I deem it appropriate in the exercise of my equitable powers under the specific circumstances of this case to grant O'Brien such interest from IAC from the date of his demand on PRC to avoid injustice. Accordingly, I find that O'Brien is entitled to prejudgment interest from January 23, 2003 on the fees and expenses incurred before that date.
DRB 23.
See Citrin, 922 A.2d at 1168.
IAC also complains that O'Brien "is trying to have it both ways" by claiming that prejudgment interest is owed from January 23, 2003, but that its claim against IAC did not accrue until April 17, 2008. DRB 24. But, I do not consider my holding that interest is owed from January 2003 inconsistent with my finding that O'Brien did not unreasonably delay in bringing his claim against IAC. Therefore, I reject IAC's suggestion that it has been treated inequitably by either or both of the Court's rulings on laches and prejudgment interest.
As per the holdings of Citrin and Underbrink, a distinction must be drawn between expenses incurred by the indemnitee before and after a demand is made. Both these cases granted prejudgment interest on the expenses incurred before demand from the date demand was first made and on all later expenses from the date they were paid. I follow these cases here and hold that O'Brien is entitled to prejudgment interest on expenses incurred before he made demand on PRC from January 23, 2003 and on expenses incurred after he made demand from the date those expenses were paid.
Underbrink v. Warrior Energy Servs. Corp., 2008 WL 2262316, at *19 (Del. Ch. May 30, 2008).
Citrin, 922 A.2d at 1168; Underbrink, 2008 WL 2262316, at *19.
O'Brien has provided a table listing the month of all payments he made to his attorneys after he made his demand for indemnification on PRC. See Pl.'s App. Invoices Ex. I. This table should be used to calculate post-demand interest. I also note that the percentage deductions I have authorized from the amount of attorneys' fees and expenses requested by O'Brien for the PRC Arbitration and the PRC Bankruptcy should be applied pro rata across all time periods involved for the purpose of calculating interest.
I turn next to the question of how the amount of prejudgment interest to which O'Brien is entitled should be calculated. At the outset, I note that O'Brien is not entitled to receive any prejudgment interest on the bulk of the fees he incurred after he made demand on PRC in January of 2003 because these fees were fully contingent. All fees incurred by Kelley Drye on O'Brien's behalf, for example, were contingent except for the initial $20,000 fee O'Brien paid for the work Kelley Drye did on O'Brien's summary judgment motion in the Florida Trial Action. Likewise, O'Brien entered into an arrangement with Hunt Gross in January 2005 whereby all of the fees he incurred thereafter would be contingent. That these fees are contingent means O'Brien does not owe them unless and until he ultimately succeeds in this litigation. Consequently, O'Brien has not yet had to expend his own money to pay for such fees. To provide full relief, a court often must make an allowance for the detention of the compensation ultimately awarded by the court and "interest is used as a basis for measuring that allowance." Here, O'Brien's personal funds have not been detained during the pendency of this litigation with respect to his contingent fee obligations. Accordingly, he is entitled to prejudgment interest only on amounts he actually paid, and not on contingent fees and expenses.
Gregory Dep. 36-37.
See supra note 46.
See Moskowitz, 391 A.2d at 211.
In this regard, I hold that no interest is due on any fees or expenses of Martin Chioffi because by the time it entered its appearance, IAC was advancing the amounts charged at the firm's base rate of $380 per hour.
On the other hand, to the extent O'Brien has had to use his personal funds to cover fee or expense obligations, he is entitled to prejudgment interest running from the date he actually paid such obligations. But such interest is due only on the base amount of fees and expenses actually paid by O'Brien, and not on the premiums.
Finally, I hold that all prejudgment interest owed on all fees and expenses owed to all law firms, both pre-and post-demand, will accrue at the legal rate as defined in 6 Del. C. § 2301(a), compounded quarterly. O'Brien contends that because the Hunt Gross retainer agreement calls for a 1% finance charge on all late invoices, interest should accrue on all fees owed to Hunt Gross at a rate of 12% per year. In the absence of any evidence that O'Brien ever paid such a late fee or that Hunt Gross routinely enforces those terms of its retainer agreements and charges their clients the specific late fee, however, I decline his request to apply a 12% annual interest rate to any portion of the fees he is owed.
6 Del. C. § 2301(a) defines the legal rate of interest as "5% over the Federal Reserve discount rate including any surcharge as of the time from which interest is due."
See Underbrink, 2008 WL 2262316, at *19.
Pl.'s Ex. 33.
PSB 21. I note that a 1% monthly finance charge actually would yield a yearly interest rate of 12.68%.
See May 26, 2010 Tr. 51.
G. The Parties Agree that IAC is Entitled to Set-Off
Finally, IAC has requested a set-off of any amounts that O'Brien may recover from PRC in the PRC Bankruptcy. IAC argues that if O'Brien receives indemnification from IAC, then he will have been fully compensated for his claims; thus, if he were to receive indemnification from IAC and PRC, he will have recovered twice for the same claims. Allowing a plaintiff to recover twice on the same claim "would yield an unwarranted windfall recovery." In his answering brief, O'Brien concedes this point. Thus, I hold that, if he recovers any money from the PRC Bankruptcy, O'Brien must assign to IAC his right to that portion of the PRC Bankruptcy recovery attributable to his indemnification claim.
Segovia v. Equities First Hldgs., LLC, 2008 WL 2251218, at *20 (Del. Super. May 30, 2008) (quoting Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 218 (3d Cir. 1992)).
PAB 35 n. 30.
O'Brien and PRC entered into an agreement regarding the total amount owed by PRC to O'Brien in bankruptcy. See Pl.'s App. Ex. 31. Although O'Brien initially filed a proof of claim in the amount of over $9 million, the agreement reduced the amount owed to $1.1 million. Id. at 5. The agreement did not identify how much of that amount was attributable to O'Brien's indemnification claim, as opposed to his employment claim. As noted supra note 108, however, O'Brien has admitted that the maximum amount he could recover in bankruptcy on his employment-related claims was $570,000. Therefore, unless the documentation regarding any payments to O'Brien based on the PRC Bankruptcy indicate otherwise, any set-off to which IAC is entitled will be in proportion to the ratio between the amount O'Brien claimed in the bankruptcy based on his indemnification claim to the sum of that number and $570,000.
III. CONCLUSION
For the reasons set forth in this Memorandum Opinion, I hold that: (1) O'Brien is entitled to be indemnified for fees and expenses, including contingency premiums charged to Hunt Gross, Martin Chioffi, and Kelley Drye, except that the premium for Kelley Drye shall be reduced from 100% to 50%; (2) the fees O'Brien receives related to the PRC Arbitration and the PRC Bankruptcy shall be reduced by 10% and 20%, respectively, of the amounts requested; (3) O'Brien is entitled to prejudgment interest as set forth in Part F above; and (4) IAC is entitled to a set-off of any amounts O'Brien may receive as a result of his indemnification claim against PRC in the PRC Bankruptcy.
Counsel for O'Brien shall prepare a proposed form of judgment or order reflecting these rulings, submit it to opposing counsel for comment, and file the proposed judgment or order within twenty days of the date of this Memorandum Opinion.