Who Started It? Delaware Court of Chancery to Address Whether Contacting DOJ Is ‘Initiating’ a Proceeding in Advancement Case

Key Takeaways

• Delaware courts favor enforcement of advancement rights despite creative denials
• Contacting DOJ after investigation starts does not bar advancement
• Broad “proceeding” language covers expected involvement in investigations
• MVMT’s five arguments were all rejected by Magistrate Wright
• Upcoming hearing could solidify precedent on advancement exclusions

Pulse Analysis

Delaware’s advancement doctrine has long been a safety net for executives facing legal battles, allowing corporations to pre‑pay reasonable fees while preserving indemnification rights. The doctrine is discretionary, but courts consistently interpret indemnification agreements broadly, denying exclusions unless the language is unmistakably narrow. This approach reflects the state’s policy of protecting corporate officers so they can act without fear of personal financial ruin, a principle that resonates across industries from finance to emerging crypto ventures.

In the Manche‑MVMT Labs dispute, the former CFO sought reimbursement for expenses incurred during a DOJ probe of the company’s token launch. MVMT argued that Manche’s counsel‑initiated contact with an Assistant U.S. Attorney constituted the start of a proceeding, which the agreement expressly excluded. Magistrate Wright dissected the timeline, noting the investigation was already underway, and emphasized that the purpose of the outreach was to obtain advice on Fifth Amendment rights, not to launch a new proceeding. All five of MVMT’s defenses—initiation, lack of party status, judicial estoppel, confidentiality, and notice delay—were dismissed, leading to a summary‑judgment award of fees‑on‑fees and pre‑judgment interest.

The decision sends a clear signal to companies, especially those operating in volatile sectors like cryptocurrency, that vague or overly restrictive advancement language offers little protection. Drafting teams must ensure clauses explicitly define “initiated” actions and consider whether any communication with regulators could be construed as triggering exclusions. As the June hearing approaches, stakeholders will watch for any refinement of the precedent, which could shape how tech firms structure indemnity agreements and manage regulator interactions going forward.