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U.S. Gas & Electric, Inc. v. Big Apple Energy

April 10, 2010

U.S. GAS & ELECTRIC, INC., PLAINTIFF,
v.
BIG APPLE ENERGY, LLC, AND VICTOR FERREIRA, DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM OF DECISION AND ORDER

U.S. Gas & Electric, Inc. ("USGE") is an energy company that provides natural gas to residential and commercial customers. In 2003, USGE entered into an agreement with Big Apple Energy LLC ("BAE"), whereby BAE agreed to act as USGE's agent in purchasing and delivering natural gas. BAE's principal, Victor Ferreira, was a longtime adviser to USGE and served as a member of its board of directors from September of 2004 to July of 2007.

On May 8, 2009, USGE filed this lawsuit against BAE and Ferreira ("the Defendants") alleging, among other wide-ranging causes of action, that BAE and Ferreira breached fiduciary duties they owed to USGE. On June 12, 2009, the Defendants filed an answer asserting five counterclaims. In particular, Ferreira's fifth counterclaim ("Count Five") asserted that, as a former member of the USGE board of directors, USGE was required to indemnify him for attorneys' fees and costs associated with this litigation under Delaware General Corporation Law § 145, Del. Code Ann. tit. 8, § 145 ("Section 145"), and applicable USGE corporate by-laws.

In an order dated November 2, 2009, the Court granted USGE's motion to dismiss Count Five, finding that Ferreira was not entitled to indemnification under either Section 145 or USGE corporate by-laws. See U.S. Gas & Elec., Inc. v. Big Apple Energy, LLC, 667 F. Supp. 2d 237 (E.D.N.Y. 2009). Ferreira now moves for reconsideration of the November 2, 2009 order. While this motion was pending, Ferreira took the unusual step of moving to amend his already dismissed counterclaim.

On reconsideration, the Court now finds that although it was appropriate to dismiss Count Five, it was an error not to have afforded Ferreira the opportunity to replead a counterclaim for indemnification. For the reasons discussed below, the Court's November 2, 2009 order is vacated. The Court will permit Ferreira to file his proposed amended counterclaim.

I. BACKGROUND

The Court assumes the parties' familiarity with the factual background and procedural history of this case. However, as this is a motion for reconsideration, a brief review of the pertinent allegations and the Court's prior decision is in order.

The complaint alleges that both BAE and Ferreira breached fiduciary duties they owed to USGE. Compl. ¶ 111-116. In particular, ¶ 113 provides that:

Ferreira was a member of the [USGE's] board of directors from September 2004 to July 2007 and frequently acted as an adviser to [USGE]. [USGE] relied on Ferreira for advice and guidance in operating its business. Ferreira personally engaged in, directed or authorized the conduct alleged herein ¶ 113. Count VIII goes on to offer factual allegations explaining that BAE and Ferreira breached their fiduciary duties by:

Wrongfully marking up pipeline charges and concealing those charges had been marked up Manipulating purchase locations to conceal and not pass along costs savings achieved through aggregate transportation Misappropriating [USGE's] capacity for their own gain Usurping [USGE's] opportunities to purchase the lowest-priced gas available for their own gain Misrepresenting the hedging practices of utilities and the usefulness of hedging strategies in order to further their business Failing to alert [USGE] to and ensure that it employed hedging strategies Mismanaging delivery, injection and withdrawal of gas Misreporting [BAE's] net income to avoid payment of 51 percent of all net income to USGE Compl. ¶ 115. The Court interpreted Count VIII to allege that, as its agent in procuring and delivering natural gas, BAE had certain fiduciary duties that it breached by virtue of the foregoing conduct. U.S. Gas & Elec., Inc., 667 F. Supp. 2d at 240. The Court also interpreted the complaint to allege that Ferreira directed and authorized this conduct in his capacity as the principal of BAE. Id.

The Defendants' answer offered only three conclusory allegations in support of Ferreira's counterclaim for indemnification:

Pursuant to Section 145 of the Delaware General Corporation Law . . . and any applicable by-laws of USGE, a corporate officer or director against whom a suit is filed is entitled to be indemnified for his attorney's fees and other costs incurred in defending such an action USGE's complaint filed in this action is a suit subject to the indemnification obligation of Section 145 of the Delaware General Corporation Law . . . and any applicable by-laws of USGE.

As a result of the forgoing [sic], Mr. Ferreira is entitled to indemnification from USGE.

Ans. ΒΆ 41-43. On July 16, 2009, USGE moved to dismiss Count Five, contending that Ferreira was not entitled to indemnification under Section 145 because he was not sued "by reason of the fact" ...


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