Lipp v. Mixedbread AI Addresses How a Company Can End an Advancement Obligation
Advancement obligations can arise when a company asserts affirmative defenses or counterclaims in litigation with former officers and directors. In an August 10, 2026 report in Lipp v. Mixedbread AI, Inc. (which remains subject to final ruling from the Court of Chancery), Magistrate in Chancery David Hume IV considered whether a company can avoid those obligations by changing course after a former officer demands advancement. The report concluded that Mixedbread’s verified interrogatory responses, reinforced by representations in the advancement proceeding, ended advancement for three defenses even without a timely pleading amendment. Advancement was not terminated for a fourth defense because Mixedbread continued to rely on the former officer’s alleged failure to perform his chief technology officer role.
How to Win and Still Lose: Delaware Court of Chancery’s Expanding Focus From Individual AI Misuse to Organizational Governance
A July 1, 2026 order from the Delaware Court of Chancery provides another insight into the risks of using generative artificial intelligence (“GenAI”) without adequate human review, and highlights the court’s increased focus on organizational controls governing AI use. Although Leiske v. Kidd concerned litigation conduct and the duties of attorneys and law firms rather than directors’ fiduciary duties or corporate AI governance, the order suggests a growing judicial focus on not only individual misuse of AI, but also on the processes, controls, and oversight surrounding how AI is deployed within an organization. That focus reflects themes discussed in our May 2026 post, which examined SDNY’s inquiry into organizational questions arising from the use of ChatGPT in government decision-making.
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.
Is There a 6th Amendment Right to Advancement of Legal Fees? In One Unique Case, A Court Says Yes.
A federal criminal case in the Northern District of California raises an unusual scenario involving the interplay between a defendant’s right to counsel of his choice under the Constitution and a corporate officer’s right to advancement of legal fees under Delaware law. Aubrey Shelton is a former senior VP of Delaware corporation RepairPal, Inc. On August 15, 2023, the United States government indicted Shelton on three counts of bank fraud, five counts of wire fraud, and four counts of tax evasion. The indictment alleged that Shelton embezzled millions of dollars from RepairPal over eight years. According to the indictment, Shelton used his control of the company’s payroll account to submit false information about his compensation to the payroll processor, inflating his salary and bonus and representing that he was entitled to receive “executive loans” and “reimbursements” for expenses he did not actually incur. In the criminal proceeding, Shelton sought to have his former employer advance legal fees for his defense, relying on a broad indemnification agreement he had signed with the company in 2020.
A Rare Advancement Trial Ends in a Rare Result
Following a bench trial, the Delaware Court of Chancery recently denied a company director’s advancement of legal fees in connection with an alleged investigation into that director’s conduct. This is a double-rarity of sorts. Advancement disputes rarely go to trial, and advancement is rarely denied. As befits a post-trial ruling, unique facts resulted in a unique result.
