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Miller v. U.S. Foodservice

April 18, 2006

JAMES L. MILLER
v.
U.S. FOODSERVICE, INC. ET AL.



The opinion of the court was delivered by: Catherine C. Blake United States District Judge

MEMORANDUM

This court already has recited the facts of this case in Miller v. U.S. Foodservice, Inc., 361 F.Supp.2d. 470 (D.Md. 2005). In another decision, the court ruled that plaintiff James L. Miller is entitled to advance payment of his reasonable legal fees and expenses, as incurred, to the extent required under his Employment Agreement with defendant U.S. Foodservice ("USF"). Miller v. U.S. Foodservice, 405 F.Supp.2d 607 (D.Md. 2005).

Now pending before the court is a motion by Miller demanding the reimbursement of his legal fees. Miller asserts that USF agreed to an extremely broad indemnification provision in the Employment Agreement that requires USF to reimburse Miller for nearly all of his attorneys' fees to date. These fees total more than $260,000. USF, in turn, disputes the manner in which Miller has allocated his legal expenses between claims covered by the Employment Agreement and those claims that allegedly are not, and Miller's failure to apportion attorneys' fees for work common to all the claims and counterclaims. For the reasons that follow, I agree with USF that Miller has not established what legal fees and expenses are properly compensable. Accordingly, I will deny Miller's demand for reimbursement without prejudice, as set forth herein.

I. Background

This court previously held that "Miller is entitled to advance payment of his reasonable legal fees and expenses, as incurred, pursuant to the Employment Agreement." Miller III, 405 F.Supp. at 621.*fn1 The court ordered Miller to "submit appropriate documentation of his reasonable attorneys' fees no later than January 6, 2006." Id. In response, Miller sent USF's counsel copies of all invoices from the two law firms representing him and demanded payment of $264,182.89 -- an amount that includes all time, except 2.6 hours, spent by both law firms on all claims and counterclaims from the outset of this litigation. See Pl. Mem., Ex. 1 (Dec. 29, 2005 Letter from Rosenberg to Webb, with enclosures).

The Employment Agreement provides in pertinent part: The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provisions of this Agreement, or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").

Pl.'s Reply, Ex. 1 at App. 5 (emphasis added).

Miller has argued, and the court has found, that "this Agreement" means, unambiguously, the Employment Agreement. See Miller III, 405 F.Supp.2d at 618-19. Thus, the pertinent question is whether there are any fees or expenses incurred by Miller in this litigation that do not arise out of claims or counterclaims involving the validity or enforceability of, or liability under, any provisions of the Employment Agreement.

II. ANALYSIS

A. Allocation of Legal Fees and Expenses

Despite Miller's assertion to the contrary, this case involves matters that are both within and without the ambit of the fee-advancement provision of the Employment Agreement. Thus, Miller is required to allocate his legal fees and expenses between covered and uncovered claims. See Fasciana v. Elec. Data Sys. Corp., 829 A.2d 160, 175 (Del. Ch. 2003). Miller has failed to meet this burden.

1. Non-Parties to the Employment Agreement

USF asserts that while USF was a party to the Employment Agreement, Royal Ahold and Ahold USA are not. Miller and his counsel have investigated and drafted claims asserted in Counts IV, V, and VI against Royal Ahold and Ahold USA. Those counts assert claims against Royal Ahold and Ahold USA for fraud, negligent misrepresentation, and promissory estoppel, all stemming from Miller's resignation from Royal Ahold's Executive Board ("RVB"). None of these claims, however, relates in any way to the "validity or enforceability of" the Employment Agreement or to USF's "liability" thereunder. Miller counters that Royal Ahold and Ahold USA -- USF's parent and affiliate, respectively -- "directed and approved USF's non-compliance with the [Employment] Agreement, and they, themselves, have counterclaimed against Miller for his purported failure to properly perform his obligations under the [Employment] Agreement as Chairman, President, and CEO of USF." Pl. Reply 3. While this may be the case, these claims and counterclaims are readily distinguishable from Counts IV, V, and VI of Miller's complaint, all of which concern Miller's resignation from the RVB. Accordingly, Miller must deduct the expenses associated with Counts IV, V, and VI.

2. Other Claims

In Counts I, II, and III, Miller asserts contract claims against Royal Ahold, Ahold USA, and USF. All three counts are based on the same agreements -- the "Post-termination Benefits," the "Severance Payment," and the "RVB Plan Benefits." Count I asserts a claim for actual breach of the agreements; Count II asserts a claim for anticipatory breach of the agreements; and Count III asserts a claim for declaratory judgment concerning the same agreements.

While the "Post-termination Benefits" are synonymous with the Employment Agreement, the "Severance Payment" and the "RVB Plan Benefits" are separate agreements between Miller and Royal Ahold and Ahold USA. Indeed, by Miller's own allegations, claims for these benefits are based on commitments made to him by representatives of Royal Ahold in May 2003 and, with reference to the RVB Plan Benefits, separate letters dated October 23, 2002 and November 20, 2002, to which USF is not a party. See Complaint, Ex. 3 and 4. Miller's contract claims in Counts I, II, and III are therefore based in substantial part on agreements other than the Employment Agreement. As such, Miller must deduct the expenses associated with claims based on the Severance Plan and the RVB Plan Benefits.

USF also asserts that Miller should deduct from his expenses the costs associated with responding to Counts I and II of the counterclaims against him. According to Miller, "USF filed counterclaims against [him], alleging that he had breached duties to USF arising under the [Employment] Agreement." Pl. Mem. 4. This statement is incomplete, however. In Counts I and II, USF and Royal Ahold allege that Miller breached the fiduciary duties of care, good faith, and loyalty that he owed to USF as a director and officer. Defendants assert that these duties were imposed on Miller by the common law of Delaware, independent of any duties imposed by the Employment Agreement. Moreover, USF and Royal Ahold seek damages well beyond the forfeiture or restitution of any compensation or other benefits that Miller was paid under the Employment Agreement. To be more precise, USF and Royal Ahold seek to recover the "substantial legal and accounting fees and costs that Royal Ahold and USF have incurred in connection with internal investigations, federal criminal and securities investigations, and the defense of civil actions" caused by ...


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