Delaware Court Finds Factual Dispute Over Officer Status, Rejects Mootness in Toku Advancement Case

Snipes, who served as Toku’s "Head of Legal" from June 2023 to July 2024, sought advancement of unpaid legal fees incurred while defending a trade secrets and breach of fiduciary duty lawsuit filed by Toku and its competitor, LiquiFi, Inc.

Toku argued the advancement claim was moot because the underlying action had been dismissed without prejudice, and alternatively, that Snipes was not an "officer" under the company’s bylaws because he was never formally appointed of directors.

Vice Chancellor Margaret M. DiBianca wrote that Toku’s argument that Snipes stopped "defending" the action when the company offered to dismiss it on Jan. 30, 2026, was unconvincing. The court noted that negotiations continued and Snipes actively sought leave to file a summary judgment motion during the 21 days between the offer and the formal dismissal on March 24.

The court read Section 6.3 of the bylaws to entitle an indemnitee to advancement of expenses incurred in denying, contesting, opposing, defeating, or offsetting allegations, claims, or rights of the opposing party in any proceeding to which they are involved because of their corporate status.

The court also rejected Toku's claim that there was nothing left to award because LiquiFi had already paid Snipes' fees through early February. DiBianca found that Snipes incurred additional, unpaid fees between February 6 and the March dismissal, and that Toku failed to show an equitable basis to preclude the claim.

On the question of officer status, the court found a genuine issue of material fact. Toku submitted an affidavit from its CEO stating that no board member, president, or the CEO himself appointed Snipes to an officer role pursuant to the bylaws.

Snipes countered by relying on Toku’s own allegations in the underlying action and a prior determination by Vice Chancellor Joseph R. Laster that Snipes was a de facto officer. However, DiBianca noted that Snipes’ counsel could not definitively comment on whether Toku routinely adhered to corporate formalities or ignored them when placing individuals in officer roles.

"At argument, Snipes’ counsel continued to rely on Toku’s allegations in the Underlying Action," DiBianca wrote. "To counter Toku’s procedural argument, Snipes asserted that Toku is a small company, where the two founders 'seemed to hold all powers relevant to' Toku."

The court concluded that neither side provided sufficient proof on whether Toku’s board created Snipes’ position as an officer or appointed him, either directly or by delegating authority to the CEO.

At oral argument, Snipes’ counsel confirmed that the amount at issue as of March 30, after deducting fees reimbursed by LiquiFi, was approximately $1,000.

DiBianca stayed exceptions pending a final entitlement decision and asked the parties to confer and submit a proposed scheduling order to bring the entitlement issue to a prompt resolution.