# Vanguard Pai Lung, LLC v. Moody

> North Carolina Business Court · August 4, 2020 · 2020 NCBC 56

URL: https://www.frixlaw.com/law-library/cases/11058503

## Case

- **Court:** North Carolina Business Court
- **Decided:** August 4, 2020
- **Citations:** 2020 NCBC 56
- **Precedential status:** Published
- **Opinion:** Opinion by Adam M. Conrad
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

Vanguard Pai Lung, LLC v. Moody, 2020 NCBC 56.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
MECKLENBURG COUNTY 18 CVS 13891

VANGUARD PAI LUNG, LLC; and
PAI LUNG MACHINERY MILL CO.
LTD.,

Plaintiffs and Counterclaim
Defendants,

v.

WILLIAM MOODY; NOREEN
MOODY; MARY KATE MOODY;
MICHAEL MOODY; NOVA ORDER AND OPINION ON WILLIAM
TRADING USA, INC.; and NOVA MOODY’S MOTION FOR PARTIAL
WINGATE HOLDINGS, LLC, JUDGMENT ON THE PLEADINGS
Defendants,

and

WILLIAM MOODY; NOVA
TRADING USA, INC.; and NOVA
WINGATE HOLDINGS, LLC,

Counterclaim Plaintiffs.

1. William Moody served as president and CEO of Vanguard Pai Lung, LLC

(“Vanguard”) for nearly a decade. Claiming that Moody had siphoned money and

assets, the company fired him. Then it sued him, three members of his family, and

two entities that he owns. Moody denies the allegations. He has also demanded

advancement of his legal fees and expenses, citing the indemnification and

advancement rights given to Vanguard’s managers in its operating agreement.

Vanguard has refused.

2. This decision addresses a single issue: whether Moody is entitled to

judgment on the pleadings for his advancement counterclaim. As to liability, the
answer is yes. The amount due for expenses incurred by Moody to date and the

manner in which Vanguard must pay his expenses going forward will require further

proceedings.

Womble Bond Dickson (US) LLP, by Matthew F. Tilley, Russ Ferguson,
and Patrick G. Spaugh, and Perkins Coie LLP, by John P. Schnurer,
Sean T. Prosser, John D. Esterhay, and Yun (Louise) Lu, for Plaintiffs
Vanguard Pai Lung, LLC and Pai Lung Machinery Mill Co. LTD.

Johnston, Allison & Hord, P.A., by Patrick E. Kelly, Michael J. Hoefling,
and David V. Brennan, for Defendants William Moody, Nova Trading
USA, Inc., and Nova Wingate Holdings, LLC.

Burns, Gray & Gray, by John T. Burns, for Defendants Noreen Moody,
Mary Kate Moody, and Michael Moody.

Conrad, Judge.
I.
BACKGROUND

3. Vanguard, a North Carolina limited liability company, makes and sells

high-speed circular knitting machines. When the company was formed in 2009,

Moody became president, CEO, and one of five managers. He is still a manager but

no longer an officer, having been fired in 2018 as a prelude to this suit.

4. Vanguard’s complaint describes a typical, if wide-ranging, case of abuse of

executive authority. If the complaint is to be believed, Moody “used his positions as

President, CEO, and manager . . . to misappropriate and embezzle funds and property

from [Vanguard], and to otherwise enrich himself, his family, [and] friends through

numerous self-dealing and illegal activities . . . .” (Compl. ¶ 23, ECF No. 3.) That

includes installing six of his children in high-ranking jobs, complete with costly perks

and inflated salaries. (See Compl. ¶¶ 62, 63, 68, 70, 74, 77, 81, 90, 170.) It also

includes allegations that he stole Vanguard’s tax refunds, ruined its relationships
with clients and lenders, and cooked up a sweetheart deal to have it rent property

from one of his own companies. (See, e.g., Compl. ¶¶ 26, 29, 38, 39, 48, 52, 74–76.)

Vanguard presses sixteen claims in all—including fraud, conversion, embezzlement,

breach of fiduciary duty, and breach of contract.

5. Moody not only denies these allegations but contends, by counterclaim, that

Vanguard must pay for his legal defense. Vanguard’s operating agreement gives its

managers broad indemnification and advancement rights. The company must

indemnify “to the fullest extent now or hereafter permitted by law” any manager who

becomes a party to a civil action “by reason of the fact that such person is or was an

authorized representative of” the LLC. (Operating Agrmt. § 3.7(a), ECF No. 63.1.)

Likewise, it must pay the manager’s expenses, including attorney’s fees, “in advance

of the final disposition” so long as the manager provides an undertaking to repay

those sums if not entitled to indemnification when all is said and done. (Operating

Agrmt. § 3.7(b).) These rights endure even when Vanguard itself sues and accuses

the manager of bad acts. (See Operating Agrmt. § 3.7(f).) Moody demanded

advancement and provided the required undertaking, yet Vanguard refused. (See

Defs.’ Am. Countercl. Ex. A, ECF No. 59.)

6. The advancement counterclaim is one of twelve being pursued by Moody and

his fellow defendants. An earlier opinion describes them in detail. See Vanguard Pai

Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at *2–7, 25 (N.C. Super. Ct. June 19,

2019) (denying Vanguard’s motion to dismiss eight counterclaims, not including the

advancement counterclaim). The other counterclaims are relevant here because
Moody believes the right to advancement extends to his affirmative claims for relief

as well as his defense of the claims against him. Vanguard has asserted affirmative

defenses, including unclean hands and Moody’s own alleged breach of the operating

agreement. (See Pls.’ Answer 15, ECF No. 77.)

7. Now that the pleadings are closed, Moody argues that his advancement

counterclaim is ripe for adjudication. He asks the Court to enter judgment on the

pleadings under Rule 12(c) of the North Carolina Rules of Civil Procedure. (See ECF

No. 78.) The Court decides the motion with the benefit of full briefing and argument

from counsel at a hearing in September 2019.

II.
ANALYSIS

8. In some respects, this dispute presents questions of first impression. Our

appellate courts have not addressed advancement beyond a token mention or two.

See Russell M. Robinson, II, Robinson on North Carolina Corporation Law § 18.06

(7th ed. 2019) [“Robinson”]. The most thorough—perhaps the only—discussion of

North Carolina law on advancement appears in a recent decision of this Court and

draws heavily from Delaware’s deep body of law in the area. See generally Wheeler

v. Wheeler, 2018 NCBC LEXIS 156 (N.C. Super. Ct. Nov. 15, 2018). With so little

guidance, it is best to start with an explanation of what advancement is and what

purpose it serves.

9. In short, indemnification and advancement are tools used to allocate risk

between a corporation or LLC and its leaders. Corporate service can be risky. Deals

and decisions made in good faith sometimes go south and, when they do, could result
in legal claims against corporate officials. A zealous legal defense isn’t cheap, so the

best and brightest might not gamble on corporate service knowing that they would

have to bear the cost of any lawsuit arising from that service.

10. Indemnification can alleviate that concern. It is the company’s promise to

reimburse an official—such as an officer, director, or manager—“for all out of pocket

expenses and losses caused by an underlying claim.” Id. at *26 (quoting Majkowski

v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 586 (Del. Ch. 2006)). Of course,

companies usually do not—and often by law cannot—indemnify officials for bad-faith

conduct. See, e.g., N.C.G.S. § 55-8-51(d). As a result, the right to indemnification

may not kick in until the official mounts a successful defense, demonstrating that she

acted in good faith. Anyone familiar with complex civil litigation knows that could

take a while. For officials who do not have the financial wherewithal to go the

distance, indemnification might look like an empty assurance.

11. Advancement provides the immediate relief that indemnification does not.

An agreement to advance expenses obligates the company to pay them during the

litigation—in other words, before the right to indemnification is established. See

Wheeler, 2018 NCBC LEXIS 156, at *27. The official, in turn, must agree to pay back

what she has received if it later turns out that she is not entitled to indemnification.

See id. This arrangement “provides corporate officials with immediate interim relief

from the personal out-of-pocket financial burden of paying the significant on-going

expenses inevitably involved with investigations and legal proceedings.” Homestore,

Inc. v. Tafeen, 888 A.2d 204, 211 (Del. 2005).
12. Long ago, the General Assembly gave North Carolina corporations the

power to advance litigation expenses to directors, all to further the public policy of

enabling corporations to attract talented leaders. See N.C.G.S. §§ 55-8-50, 55-8-53.

Although there is no analogous statute for LLCs, silence should not be mistaken for

disapproval. Members of LLCs have great leeway to arrange their affairs by contract.

See id. § 57D-10-01. Without question, “[a]dvances of expenses may . . . be addressed

in an operating agreement,” just as the members of Vanguard chose to do here.

Robinson § 34.04[4].

13. When it works as designed, advancement ensures that company officials

have the resources to resist unjustified lawsuits without relieving them of ultimate

responsibility for any bad-faith conduct. But for all its virtues, advancement is a

tinderbox for ancillary litigation. Few companies, having sued an official for bad

behavior, are willing to fund both sides of the lawsuit, even when they’ve contracted

to do so. That often prompts early and accelerated motions practice in which the

official seeks summary relief before reaching the merits of the underlying claims. See,

e.g., Radiancy, Inc. v. Azar, 2006 Del. Ch. LEXIS 13, at *1–4 (Del. Ch. Jan. 23, 2006).

14. This dispute is a good example. Vanguard, after accusing Moody of

pervasive disloyalty, has refused to advance his litigation expenses. Moody contends

that the Court need not look beyond the pleadings to decide the advancement dispute

in his favor. In this posture, the Court must take Vanguard’s allegations as true and

disregard Moody’s contrary allegations. See Ragsdale v. Kennedy, 286 N.C. 130, 137,

209 S.E.2d 494, 499 (1974). Moody can succeed only if the pleadings “clearly
establish[] that no material issue of fact remains to be resolved and that he is entitled

to judgment as a matter of law.” Carpenter v. Carpenter, 189 N.C. App. 755, 761, 659

S.E.2d 762, 767 (2008).

A. “By Reason of the Fact”

15. The operating agreement confers a broad, mandatory right to advancement

on Vanguard’s managers, including Moody. Read together, sections 3.7(a) and (b) put

two conditions on advancement: that Moody must have been sued “by reason of the

fact” that he was an authorized representative of Vanguard; and that he must provide

an undertaking to repay advanced expenses if “ultimately determined” not to be

entitled to indemnification. (Operating Agrmt. §§ 3.7(a), (b).) Vanguard disputes the

first but not the second.

16. The phrase “by reason of the fact” commonly appears in corporate

advancement and indemnification provisions, including those at issue in Wheeler.

There, the Court found Delaware law “instructive” when interpreting its meaning.

Wheeler, 2018 NCBC LEXIS 156, at *34. Moody opposes looking to Delaware law,

claiming that it conflicts with North Carolina law. But the only North Carolina case

that Moody cites has nothing to do with advancement, comes from a context other

than corporate law, and deals with different contract language. See CSX Transp.,

Inc. v. City of Fayetteville, 247 N.C. App. 517, 525–27, 785 S.E.2d 760, 765–66 (2016).

There is no conflict, and Wheeler’s approach is sound. If the Court is wrong about

that, Moody will suffer no harm because he meets the “by reason of the fact”

requirement even as it has been interpreted by Delaware’s courts.
17. All that the phrase “by reason of the fact” requires is a “nexus” between the

underlying claim and the official’s corporate capacity. Wheeler, 2018 NCBC LEXIS

156, at *34 (quoting Homestore, 888 A.2d at 213). For close calls, “the line between

being sued in one’s personal capacity and one’s corporate capacity generally is drawn

in favor of advancement . . . .” Holley v. Nipro Diagnostics, Inc., 2014 Del. Ch. LEXIS

268, at *26 (Del. Ch. Dec. 23, 2014). It is enough to show that “the corporate powers

were used or necessary for the commission of the alleged misconduct,” Paolino v. Mace

Sec. Int’l, Inc., 985 A.2d 392, 406 (Del. Ch. 2009), or that “the claim depends on a

showing that the official breached duties, quintessentially fiduciary duties, he owed

to the corporation in that capacity,” Zaman v. Amedeo Holdings, Inc., 2008 Del. Ch.

LEXIS 60, at *55 (Del. Ch. May 23, 2008); see also NAMS Holdings, LLC v. Reece,

2018 NCBC LEXIS 32, at *8 (N.C. Super. Ct. Apr. 16, 2018).

18. In some cases, artful pleading might obscure the nature of the claims and

underlying conduct. Not so here. Vanguard’s complaint is blunt: it alleges that

Moody “used his positions” as manager and officer to favor his family and friends,

steal from the company, and hide his wrongdoing. (Compl. ¶¶ 23, 24; see also Compl.

¶¶ 27, 29, 37, 62.) By doing so, it claims, Moody breached his fiduciary duties. (See

Compl. ¶ 120.) The nexus is plain as day. See Wheeler, 2018 NCBC LEXIS 156, at

*36–37 (concluding that “alleged conduct as President” in “breach of officer’s and

director’s duties” met nexus requirement).

19. Vanguard barely mentions its claim for breach of fiduciary duty, apparently

recognizing that it is a lost cause. (See Opp’n 15, ECF No. 84.) Advocating “a claim-
by-claim analysis,” it argues that the other claims lack the required nexus. (Opp’n

13.) It is certainly possible for some claims to meet the nexus requirement and others

not. If so, the right to advancement is limited to the qualifying claims. See, e.g.,

Weaver v. ZeniMax Media, Inc., 2004 Del. Ch. LEXIS 10, at *11–14 (Del. Ch. Jan. 30,

2014).

20. But when all the claims rest on the same factual allegations, as they do here,

there is no reason to treat one claim differently than any other. Vanguard concedes

that its claims for conversion, constructive fraud, embezzlement, unfair or deceptive

trade practices, unjust enrichment, claim and delivery, and civil conspiracy depend

on the same conduct that underlies its claim for breach of fiduciary duty. (See Opp’n

14–18.) The complaint makes clear that the other claims do too, (see Compl. ¶ 120),

and that Moody “used his positions” to accomplish all of the alleged misconduct,

(Compl. ¶¶ 23, 24). In other words, though different legal theories may be at play,

all sixteen claims are intertwined and involve “the charge that a senior managerial

employee failed to live up to his duties of loyalty and care to the” company. Reddy v.

Elec. Data Sys. Corp., 2002 Del. Ch. LEXIS 69, at *20 (Del. Ch. June 18, 2002), aff’d,

820 A.2d 371 (Del. 2003).

21. The Court therefore concludes that all claims against Moody arise “by

reason of the fact” that he was a manager and officer of Vanguard. See, e.g., Doran

Jones, Inc. v. Per Scholas, Inc., 2017 U.S. Dist. LEXIS 67828, at *21 (S.D.N.Y. May

2, 2017) (addressing claims together when based on “the same factual allegations”);
see also Wheeler, 2018 NCBC LEXIS 156, at *36–37 (same); Zaman, 2008 Del. Ch.

LEXIS 60, at *104–05 (same).

22. As a result, Moody has met the requirements for advancement. He does not

have to show that he also has a right to indemnification, as Vanguard contends. (See

Opp’n 10–13.) Advancement “is not dependent on the right to indemnification”; it

serves the distinct purpose of providing immediate, interim relief. Homestore, 888

A.2d at 212; accord Wheeler, 2018 NCBC LEXIS 156, at *26. The operating

agreement drives home that difference by requiring an undertaking to repay

advanced expenses if indemnification is later denied. That requirement would be

superfluous if advancement depended on the manager’s right to indemnification.

23. It is undisputed that Moody provided the required undertaking. (See Defs.’

Am. Countercl. Ex. A.) And he is a party here “by reason of the fact” of his service to

Vanguard. He has therefore met all the requirements for advancement imposed by

the operating agreement.

B. Affirmative Defenses

24. Next, the Court addresses whether Moody forfeited his right to

advancement. Vanguard relies on the general rule of contract law “that if either party

to the contract commits a material breach of the contract, the other party should be

excused from the obligation to perform further.” Coleman v. Shirlen, 53 N.C. App.

573, 577–78, 281 S.E.2d 431, 434 (1981). According to Vanguard, Moody breached

the operating agreement as early as 2009, thus excusing it from having to advance

expenses. (See Opp’n 6–10.) And because this is a motion for judgment on the
pleadings, Vanguard contends, the Court must accept its allegations of Moody’s

breach—and, thus, its affirmative defense—as true. (See Opp’n 6.)

25. This is not persuasive. Contracts vary in form and substance. Some

promises may be independent of other promises in the same contract. When they are,

the “[f]ailure to perform an independent promise does not excuse nonperformance on

the part of the other party.” Coleman, 53 N.C. App. at 578, 281 S.E.2d at 434.

Whether promises are dependent or independent turns on the language of the

contract, its nature, and the relationship between the parties. See Williams v. Habul,

219 N.C. App. 281, 294, 724 S.E.2d 104, 112–13 (2012).

26. Take, for example, forum selection clauses. The promise to sue in a given

forum ordinarily does not depend upon performance of the other contract terms.

Rather, by choosing a venue for resolving contract disputes, the parties implicitly

acknowledge that one or the other might not live up to its end of the bargain. It would

be nonsensical to say that the choice of forum becomes unenforceable when a breach

occurs. See, e.g., Monster Daddy, LLC v. Monster Cable Prods., Inc., 483 Fed. App’x

831, 835 (4th Cir. 2012) (unpublished) (concluding that forum selection clause was

independent and would be “meaningless” if prior breach could render it

unenforceable).

27. For similar reasons, Vanguard’s obligation to advance expenses to a

manager does not depend on faithful performance of the manager’s duties. The very

purpose of advancement is to allow the manager to defend against allegations of

misconduct, even those leveled by Vanguard. (See Operating Agrmt. § 3.7(f).) The
obligation is mandatory (Vanguard “shall pay all expenses”) and due before a decision

on the underlying claims (“in advance of the final disposition of such action”).

(Operating Agrmt. § 3.7(b).) To say that the right to advancement depends on an

ultimate determination of the manager’s faithful performance, as Vanguard argues,

would eliminate the right altogether, upsetting the parties’ allocation of risk.

28. In a footnote, Vanguard points to its allegation that Moody covered up his

wrongdoing and argues that his advancement claim is therefore barred by his own

unclean hands. (See Opp’n 8 n.3.) This argument is equally unpersuasive. The

doctrine of unclean hands bars recovery only when the wrongful conduct relates to

the requested relief. See Collins v. Davis, 68 N.C. App. 588, 592–93, 315 S.E.2d 759,

762 (1984); Shaw v. Gee, 2018 NCBC LEXIS 109, at *17 (N.C. Super. Ct. Oct. 19,

2018). Moody’s alleged coverup relates to Vanguard’s claims of disloyalty, not to his

request for advancement. If an official’s alleged misconduct amounted to unclean

hands, it “would turn every advancement case into a trial on the merits of the

underlying claims,” contrary to the nature and purpose of advancement. Reddy, 2002

Del. Ch. LEXIS 69, at *28–29.

29. Vanguard may well prove that Moody breached the operating agreement

and his duties to the company. For purposes of this motion, the Court assumes that

he did. Taking those allegations as true, the upshot is that Moody might not be

entitled to indemnification at the end of the case and that he might have to repay

expenses advanced to him just as he said he would in the undertaking. But it is not

a defense to the obligation to advance expenses in the first place.
C. Advancement and Moody’s Counterclaims

30. The pleadings establish Moody’s right to advancement, and Vanguard has

not put forward any defense germane to that issue. The operating agreement

therefore requires Vanguard to advance all expenses incurred “in defending” this

action. (See Operating Agrmt. § 3.7(b).) Moody argues, and Vanguard disagrees, that

this includes expenses incurred to litigate his counterclaims. (See Br. in Supp. 20,

ECF No. 79.)

31. Citing the same Delaware case law, both sides agree that “defending” can

include asserting counterclaims. Few counterclaims are truly defensive in character,

though. The Delaware Supreme Court opened the door to advancement for

compulsory counterclaims, observing that they arise out of the same transaction as

the original claims, are naturally “part of the same dispute,” and might “defeat, or

offset,” the original claims. Citadel Holding Corp. v. Roven, 603 A.2d 818, 824 (Del.

1992). “In other words, a counterclaim fits within the ‘in defending’ language if it

defends the corporate official by directly responding to and negating the affirmative

claim.” Zaman, 2008 Del. Ch. LEXIS 60, at *122; see also Sun-Times Media Grp.,

Inc. v. Black, 954 A.2d 380, 397 (Del. Ch. 2008).

32. Most of Moody’s counterclaims do not directly respond to the claims asserted

against him. He alleges, for example, that Vanguard refused to pay him for accrued

vacation days as required by his employment agreement. (See Defs.’ Am. Countercl.

¶¶ 140–41.) That claim has nothing to do with the self-dealing and disloyalty alleged

against Moody. At the hearing, his counsel agreed as much.
33. Moody’s other counterclaims also appear to be unrelated to the original

claims. He alleges that Vanguard denied his request to inspect its books, breached a

profit-sharing agreement, and breached implied covenants of good faith and fair

dealing in his various employment-related agreements. (See Defs.’ Am. Countercl.

¶¶ 115, 132, 147.) These claims do not directly respond to any of the allegations

against Moody. And if he is successful, they would not “operate to defeat the

affirmative claims against” him. Zaman, 2008 Del. Ch. LEXIS 60, at *122.

34. Moody makes no serious attempt to show otherwise. Rather, he seems to

contend that it will be hard to disentangle expenses for any given claim because of

the all-encompassing, “scorched-earth litigation strategy” taken by Vanguard. (Br.

in Supp. 20.) How to treat specific invoices and line entries—that is, whether they go

to advanceable or nonadvanceable claims, or to a bit of both—is a question for another

day. For now, limited to the pleadings, the Could decides only whether the

counterclaims are advanceable. The counterclaims based on Moody’s informational

rights, vacation days, and profit-sharing are not advanceable under any reasonable

interpretation of “defending” in section 3.7(b).

35. That leaves the indemnification and advancement counterclaims, which

neither side directly addresses. Officials “who successfully prosecute an

advancement suit are generally entitled to an appropriate award of fees for the

expenses incurred in litigating the suit, unless the parties have agreed otherwise.”

Thompson v. ORIX USA Corp., 2016 Del. Ch. LEXIS 84, at *19 (Del. Ch. June 3,

2016); accord Nielsen v. EBTH, Inc., 2019 Del. Ch. LEXIS 1291, at *38 (Del. Ch. Sept.
30, 2019). The rationale for this rule, at least in the LLC context, is based on the

freedom of contract. Members of an LLC can tailor the operating agreement as

desired, including by allocating the risk of a dispute about advancement to the official

rather than the company. When the members agree to advance expenses to the outer

limit, the risk goes to the company, and relief would be less than complete if the

official had to bear the expense of holding the company to its promise. See, e.g.,

Tulum Mgmt. USA LLC v. Casten, 2015 Del. Ch. LEXIS 308, at *8–9 (Del. Ch. Dec.

23, 2015) (allowing fees for advancement when operating agreement required

advancement “to the fullest extent provided or permitted by” law).

36. Vanguard’s operating agreement does not exclude fees for pursuing

advancement. It requires advancement of “all expenses” and “[t]o the maximum

extent permitted by law.” (Operating Agrmt. §§ 3.7(a), (i).) The Court is not aware

of any law that would limit Moody’s right “to recover his legal fees incurred in seeking

advancement” and therefore concludes that he is entitled to do so. Tulum Mgmt.

USA, 2015 Del. Ch. LEXIS 308, at *9.

D. Procedural Matters

37. Finally, Vanguard lodges a procedural objection. In Wheeler, an aggrieved

company official sought advancement through a motion for preliminary injunction,

which the Court denied because he had not shown a threat of irreparable harm. See

Wheeler, 2018 NCBC LEXIS 156, at *42–52. Vanguard contends that Moody’s

request for immediate advancement is a disguised motion for a preliminary

injunction. (See Opp’n 20–21.)
38. This misunderstands the distinction between temporary and final relief and

draws the wrong lessons from Wheeler. The purpose of a preliminary injunction is to

preserve the status quo pending a final resolution of the merits. See A.E.P. Indus.,

Inc. v. McClure, 308 N.C. 393, 400, 302 S.E.2d 754, 759 (1983). It is extraordinary

relief, requiring litigants to take action or refrain from action, under penalty of

contempt, before liability is established and judgment entered. The risk of error is

higher in that prejudgment posture, dealing as it does with probabilities rather than

established fact. Wheeler’s denial of temporary, prejudgment relief faithfully applied

these settled principles.

39. By contrast, entry of judgment on the pleadings is a final decision on the

merits. Its purpose is to allow early and efficient resolution of disputes when

discovery would be of no use. Most cases turn on contested facts and are not suited

to early relief. But there is no reason to delay judgment when, giving every advantage

to the nonmoving party, the pleadings establish all the pertinent facts and leave room

for only one outcome. Wheeler does not address, much less caution against, summary

adjudication of advancement claims, which the Court has shown a willingness to do

when applying the law of other States. See Islet Scis., Inc. v. Brighthaven Ventures,

LLC, 2017 NCBC LEXIS 3, at *16–22 (N.C. Super. Ct. Jan. 12, 2017) (applying

Nevada law and granting Rule 12(c) motion in advancement dispute).

40. Vanguard correctly observes that the pleadings do not establish the amount

of its obligation. But all that is at issue at this moment is whether Vanguard has an

obligation to advance expenses. It does, for all the reasons discussed above. The onus
is now on the parties and their counsel to confer in good faith about the expenses that

Moody has incurred. If they cannot agree, the Court will have to decide those disputes

with a more complete record. The potential for future disputes, though, is no reason

to postpone a decision on the merits.

41. Indeed, Vanguard’s position, if accepted, would make North Carolina an

outlier. Courts around the country routinely decide advancement disputes in

summary fashion. This is because “[a]dvancement cases are particularly appropriate

for resolution on a paper record . . . .” DeLucca v. KKAT Mgmt., LLC, 2006 Del. Ch.

LEXIS 19, at *20 (Del. Ch. Jan. 23, 2006). With rare exception, the right to

advancement depends only on the pleadings that allege misconduct by the official and

the contract that defines the right. Delay would serve no useful end but would

threaten to “render the right meaningless.” United States v. Stein, 452 F. Supp. 2d

230, 272 (S.D.N.Y. 2006). In Delaware and elsewhere, courts apply ordinary rules of

civil procedure—most commonly summary judgment but also judgment on the

pleadings—to expedite decisions when appropriate. See, e.g., Mitchell Co. v. Campus,

2009 U.S. Dist. LEXIS 16694, at *2 (S.D. Ala. Mar. 3, 2009) (summary judgment);

Morgan v. Grace, 2003 Del. Ch. LEXIS 113, at *3–4 (Del. Ch. Oct. 29, 2003) (same);

see also Freeman Family LLC v. Park Ave. Landing LLC, 2019 Del. Ch. LEXIS 149,

at *2–3 (Del. Ch. Apr. 30, 2019) (judgment on the pleadings). The Court sees no

reason to take a novel and different approach here.

42. Although advancement has been the subject of few North Carolina cases,

this will not be the last. To ensure that an advancement dispute receives a full, fair,
and expeditious hearing, litigants should bring it to the Court’s attention in their case

management report and at the case management conference. That would allow the

Court to create a case management schedule that accounts for early motions practice

while giving each side an opportunity to address, among other things, the need for

limited discovery and other matters that might cause delay.

III.
CONCLUSION

43. For all these reasons, the Court GRANTS in part Moody’s motion for

judgment on the pleadings. Moody is entitled to advancement for all claims asserted

against him and for his own counterclaims for advancement and indemnification. He

is not entitled to advancement for his other counterclaims.

44. No later than August 25, 2020, counsel shall meet and confer in good faith

to determine the amount of advanceable expenses incurred by Moody to date and to

establish a procedure for ongoing advancement. If disputes arise, Moody may file a

motion for payment of advanceable expenses with appropriate supporting materials

on or before September 8, 2020, and Vanguard may file objections within fourteen

days of any motion. These briefs shall be limited to 2,500 words.

SO ORDERED, this the 4th day of August, 2020.

/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11058503. Public record. Not legal advice.