Gilbert v. Unisys: The Court of Chancery grants advancement to unelected officers

In Gilbert v. Unisys Corp., the Delaware Court of Chancery considered whether two former employees were officers entitled to advancement of expenses incurred in defending trade secret misappropriation and breach of contract claims brought by their former employer. In January 2021, Unisys Corporation (the Company) hired Leon Gilbert to lead one of its business units as the Senior Vice President and General Manager. Soon after, the Company hired Michael McGarvey, who had worked with Gilbert for their previous employer, as the Vice President of Solutions Management for the same business unit. On June 3, 2021, the Company acquired Unify Square, Inc. (Unify) and placed three Company employees on Unify’s board. On the same day, Unify’s board unanimously appointed Gilbert to serve as the President of Unify. Unify merged into the Company six months later, integrating into the business unit Gilbert led. 

In early 2023, Gilbert and McGarvey (Plaintiffs) departed the Company and rejoined their previous employer. Shortly thereafter, the Company filed suit against the Plaintiffs, asserting claims for trade secret misappropriation and breach of contract. Plaintiffs demanded that the Company advance their litigation expenses pursuant to the indemnification and advancement provision in the Company’s certificate of incorporation.  

The Company refused, asserting that the Plaintiffs were not “officers” entitled to advancement under the Company’s bylaws. The Company’s bylaws stated that the “officers of the [Company] shall be chosen by the Board of Directors and shall be a Chief Executive Officer, a President, one or more Vice Presidents . . . and such other officers as may be elected in accordance with the provisions of Section 3 of this Article IV.” The bylaws therefore identified two categories of officers: (i) those expressly identified by title, which the court labeled “mandatory officers,” and (ii) officers that may be elected at the discretion of the Company’s board, which the court labeled “discretionary officers.”

The Company argued that the only Vice Presidents entitled to advancement were those elected or appointed by the Company’s board. The court disagreed, holding that mandatory officers need only be “chosen” under the bylaws and that, because “Vice Presidents” appeared on the list of mandatory officers, a reasonable person hired as a Vice President would expect to receive indemnification and advancement.  The court found that, at best, the bylaws were ambiguous on the issue and, based on the doctrine of contra proferentum (which construes ambiguous contractual language against the drafter), Plaintiffs were officers entitled to advancement.

In addition, the court ruled that Gilbert was entitled to indemnification and advancement with respect to his service as President of Unify. The Company argued that it was Unify’s board, not the Company, that elected Gilbert to serve in that capacity, and in any event that the Company’s claims arose after Unify’s merger into the Company and therefore Gilbert had not been sued by reason of the fact of his Unify service. The court stated that where “a parent corporation acquires a target corporation, elects a new board for the target consisting only of the parent's employees, and that board appoints another employee as the target’s new president—all in the same day —the court infers that the new president's service is at the request of the parent corporation.” As to the question of whether Gilbert had been sued by reason of the fact of his Unify Square service, the court noted that “the relevant point of inquiry is not when Gilbert allegedly misappropriated information in connection with leaving Unisys, but rather when he first learned that information and in what capacity he originally aided in its development.” The court held that Gilbert had served as President of Unify at the Company’s request and had been sued by reason of the fact of his position there, and was therefore entitled to advancement.

Finally, both Plaintiffs served as employees of the same business unit at the Company and argued that they were entitled to advancement as employees of an “enterprise” at the Company’s request pursuant to the Charter and bylaws. The court held that because the business unit operated as a standalone division of the Company, with securities reporting and marketing materials that were separate from other Company business units and with sales and transfers between business units priced as if the sales and transfers were to third parties, that the Plaintiffs’ business unit was an “enterprise.” This holding provided an additional basis for the court to grant advancement to the Plaintiffs.

This opinion demonstrates for drafters of indemnification and advancement provisions the importance of ensuring that the categories of persons entitled to indemnification and advancement are tailored to reflect the intent of the corporation.

Authored by Allison Wuertz, Jordan Teti, and Sean MacDonald.