Who Started It? Delaware Court of Chancery to Address Whether Contacting DOJ Is ‘Initiating’ a Proceeding in Advancement Case
On March 6, 2026, Magistrate Wright of the Delaware Court of Chancery issued a report which underscored Delaware courts’ well-established preference for the enforcement of advancement rights, especially in cases involving broadly drafted provisions. In doing so, the Magistrate addressed the question of whether advancement may be denied in circumstances where the indemnitee affirmatively contacts an investigating authority.
In Rushikesh Manche v. MVMT Labs, Inc., Magistrate Wright held that co-founder and former CFO of MVMT Labs, Inc. (MVMT) Rushikesh Manche was entitled to advancement in connection with a DOJ investigation focused on MVMT’s cryptocurrency token launch. The report addressed, and ultimately rejected, multiple arguments from the company to justify denying advancement. The most interesting was MVMT’s contention that Manche initiated the proceeding by “affirmatively initiating contact with the DOJ” when his counsel reached out to the department, thus triggering an advancement exclusion in the relevant agreement.
In rejecting this argument, the Magistrate determined that self-initiated communication with the investigating authority, especially when the proceeding has already begun, does not constitute initiation of the proceeding barring advancement. The report also serves as a reminder to companies that denial of advancement under Delaware law, even with creative arguments, remains a steep uphill climb.
Background: Crypto, Controversy, and Communication with DOJ
Under Delaware law, advancement is a discretionary right — typically outlined in bylaws or individual agreements — by which a corporation agrees to pay an officer, director, employee, or agent’s legal fees as incurred for actions related to their corporate service, subject to repayment if indemnification is later denied. Delaware law strongly favors the enforcement of advancement rights, denying them only in rare cases.
This challenge involved MVMT, a technology company in the cryptocurrency space, and co-founder and former CFO Rushikesh Manche, who had advancement rights pursuant to an Indemnification Agreement (the Agreement) executed on March 31, 2025. In April 2025, Manche was asked to take leave from the company due to market-making activities associated with a recent token launch, which drew media scrutiny. By early May, the DOJ had issued a grand jury subpoena to MVMT pertaining to this issue, and the company terminated Manche.
In October 2025, Manche’s counsel affirmatively reached out to, and spoke with, an Assistant United States Attorney (AUSA), purportedly to gather information with which to advise Manche on whether to invoke his Fifth Amendment rights in an action against MVMT challenging his removal as an officer and director. During that conversation, the AUSA requested that counsel arrange for an interview with Manche. Manche subsequently requested advancement under the Agreement, which MVMT denied. The Agreement required the company to advance expenses incurred in connection with any “threatened, pending or completed” proceeding — including investigations — in which Manche “was, is or will be involved … as a party or otherwise” by reason of his corporate status. This language would ultimately prove decisive to Manche’s victory.
The Report: Difficulty of Denying Advancement in Delaware
MVMT put forward five arguments for avoiding advancement obligations. The most interesting and novel contention concerned the affirmative outreach to the DOJ, while the most intensely scrutinized concerned whether Manche should be considered a party to the proceeding under the Agreement. Each of the company’s arguments ultimately was denied, but they offer insight into advancement claims in Delaware generally.
Affirmative Outreach to DOJ
MVMT raised a novel issue with its “initiated proceeding” argument. The company relied on an exclusion under the Agreement in cases where the indemnitee initiates the proceeding, typically included so as to carve out actions initiated by the indemnitee against the indemnitor or third parties. MVMT claimed that Manche sought advancement for a proceeding, or at least part of a proceeding, against MVMT that he initiated himself when his counsel contacted the AUSA. MVMT even suggested that the DOJ interview request “actually originated with an offer by Manche to sit down with the government.”
Magistrate Wright dismissed the initiation argument for two principal reasons. First, the assertion that Manche requested the DOJ interview (as opposed to simply initiating the contact) was inconsistent with the factual record. Second, and perhaps more importantly, Manche did not initiate the proceeding because the DOJ already had opened a formal investigation before Manche’s counsel contacted the AUSA. The report underscored that the purpose of the attorney’s outreach was to obtain information to advise her client regarding his Constitutional rights. It suggested that, regardless of the timeline, this type of contact would not render a subsequent DOJ interview request an “initiated proceeding.” As Magistrate Wright explained, “an interviewer’s request for an interview is separate from a potential interviewee’s earlier request for clarification.”
Manche’s Involvement in the Investigation
The report also examined the company’s first argument for denying advancement: that Manche was not “a party or participant to a proceeding” under the Agreement. Under MVMT’s logic, Manche’s involvement in the investigation was uncertain or merely speculative because the government had not directly contacted him about it. Magistrate Wright rejected that view, emphasizing that the broad language in the Agreement does not require formal party status, unlike in other cases pointed to by the company. Rather, the Agreement allows for advancement when an individual has a reasonable expectation he will be involved in an investigation due to his corporate status. Based on the facts, there was no trouble establishing such an expectation in this case.
Equitable and Procedural Arguments
MVMT also invoked judicial estoppel, alleged misuse of confidential information, and purported delay in providing notice in its efforts to justify denying advancement. Magistrate Wright, however, found no inconsistency in Manche’s prior litigation positions that would justify judicial estoppel and agreed with Manche that the information he relied on for his advancement claim no longer enjoyed confidentiality protection. This is because these protections, which arose from Manche’s prior action against MVMT challenging his removal, terminated when the relevant information was previously discussed in open court. Magistrate Wright also concluded that Manche’s delay in notifying MVMT of the DOJ contact did not cause material prejudice and, thus, did not prevent advancement under the Agreement. Based on the rejection of all five of MVMT’s arguments, he granted Manche’s motion for summary judgment, and granted him fees-on-fees and pre-judgment interest.
Next Steps and Key Takeaways
MVMT filed exceptions to Magistrate Wright’s report in March and submitted a supporting brief that largely reiterates its previously dismissed arguments based on its interpretation of the Agreement. The company contends that Manche’s intentional outreach to the DOJ bars advancement based on the plain language of the Agreement, stating that “advancement is not designed to reimburse individuals when they go and knock on the government’s door.” The brief notably challenges Manche’s claim that his counsel reached out to the DOJ to obtain information regarding the invocation of his Fifth Amendment rights in a separate action by pointing out that Manche moved to voluntarily dismiss that action five days before his counsel’s communication with the AUSA. Manche subsequently filed an answering brief in response to MVMT’s exceptions, which was followed by MVMT’s reply brief. Vice Chancellor Laster has scheduled a hearing on the exceptions to the Magistrate’s report for June 3, 2026.
Assuming the report is confirmed, however, Rushikesh Manche v. MVMT Labs, Inc. highlights Delaware courts’ long-standing inclination towards the enforcement of advancement rights. Magistrate Wright notably relied on the Agreement’s broad definition of “proceeding” and conception of “involvement” to support his finding in favor of the indemnitee. Regardless of the final outcome, the case serves as a reminder to companies that precision (or imprecision) in the drafting of advancement language may have significant implications down the road.
Law clerk Darcy Taylor also contributed to this article.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
