President Biden Signs Executive Order Establishing Framework for Artificial Intelligence Regulation


On October 30, 2023, President Biden signed an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence (the “Order”), which establishes an initial framework for the U.S. Government to follow to develop policies to regulate emerging artificial intelligence (“AI”) technologies. The Order’s purpose is to jumpstart a Federal Government wide effort to formalize standards and laws that ensure responsible and safe development and use of AI, which begins with a directive to develop guidelines, standards, and best practices for AI safety and security. According to a Fact Sheet the White House released with the Order, these AI standards are intended to protect Americans’ privacy, advance equity and civil rights, stand up for consumers and workers, promote innovation and competition, and advance American leadership globally. More specifically, the standards are intended to address chemical, biological, radiological, nuclear, cybersecurity, and other foreseeable national security risks, as well as risks from social harms like fraud, discrimination, and dissemination of misinformation.

As initial guidance that establishes a framework for AI policies and regulations, the Order tasks several federal agencies with developing and implementing the directives over the course of the next 90 to 365 days. The National Institute of Standards and Technology (NIST) is tasked with developing the standards, tools, and tests to help ensure that AI systems are safe, secure, and trustworthy. NIST will coordinate with the Department of Homeland Security (DHS), Department of Energy (DOE), and other agencies to develop rigorous standards for “red team” testing, which is testing aimed at breaking the AI system to expose vulnerabilities. The DHS will apply the NIST testing standards to the United States’ critical infrastructure and will work with the DOE to address AI systems’ threats to critical infrastructure.

The Order comes after, and the fact sheet refers to, voluntary commitments from fifteen major technology companies, including Microsoft, Google, Amazon, and Meta, amongst others, to work towards developing regulations and standards for the safety, security, and trustworthiness of AI. Accordingly, the Order initially requires, by invoking the Defense Production Act, only developers of large AI systems exceeding a specified threshold of computational power to apply the rigorous NIST testing standards to their systems and report the results before releasing the AI system to the public. The Department of Commerce is tasked with further defining the computational power and technical requirements of an AI system that will be subject to the testing and reporting requirements moving forward to ensure all AI systems that pose a threat to national security and the risks described above are captured in the future.

In addition to developing standards to ensure AI systems are secure, agencies are tasked with developing AI guidelines to address social and economic issues affecting Americans, including, equality and civil rights, fraud or deception caused by AI-generated unauthentic content, AI invading (and increasingly replacing) the workforce, AI’s capabilities to advance US healthcare and education, and the preservation of the gamut of individuals’ privacy and data that is captured by or used to “teach” AI. In response to claims AI systems may include or develop discriminatory practices, the Department of Justice and Federal civil rights offices are directed to develop both policies to prevent and address discriminatory practices in AI systems, including algorithmic discrimination, and best practices for prosecuting and investigating civil rights violations. The Department of Commerce is tasked with developing content authentication and watermarking measures to combat fraud and misinformation caused by generative AI, which can be used to create “deepfake” photos and videos, for example. The Department of Labor is tasked with developing best practices to minimize AI harms and maximize AI benefits to workers, and producing a report on the potential impacts AI may have on the future of the labor market, including by job displacement. The Department of Health and Human Services and the Department of Education are respectively tasked with investigating how AI can best improve the health and education systems, including through development of medications and AI based educational tools. Understanding that AI systems require massive amounts of data input in order to learn, a core element of the standards NIST is directed to develop is to preserve and protect individuals’ privacy and data that is used to train AI systems.

Finally, the Order promotes innovation and competition in the AI space by expanding grants and providing access to a publicly available national database of AI research and tools, directs the Secretary of State and heads of other agencies to coordinate with the international community on AI initiatives to advance US leadership in the AI space, establishes measures to ensure the responsible and effective governmental use of AI, and charges the National Security Council to develop a National Security Memorandum to keep the United States on the forefront of emerging AI technologies.

The Order is a necessary step to cement the United States as a leader in the development and efficient use of AI technology to make Americans’ lives better, while at the same time protecting Americans from AI’s potential negative effects from misuse that could drastically outweigh any benefits AI can offer. The next year should provide significantly more clarity on AI regulation as the relevant agencies implement their directives from the Order.

Corporate Transparency Act: Beneficial Ownership Information Reports Required Beginning 2024


The Financial Crimes Enforcement Network (“FinCEN”), a division of the US Treasury Department, issued its final rules (the “Reporting Rules”) under the Corporate Transparency Act (“CTA”), establishing reporting requirements of the beneficial ownership and control of companies formed or registered to do business in the United States and defined as “reporting companies” under the CTA. The CTA became effective in 2021 as part of the Anti Money Laundering Act of 2020, and the Reporting Rules’ stated purpose is “to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.”

The Reporting Rules will specifically impact the private investment world as well as many owners and managers of other small businesses in the US. This is because the Reporting Rules require entities to file reports with FinCEN containing certain information about the individuals with beneficial ownership and/or substantial control of those entities. The required ownership and control information will be familiar to anyone who has disclosed beneficial ownership information to a bank or lender to obtain financing. But beginning next year, the Reporting Rules will require certain entities to self-report beneficial ownership and substantial control information directly to FinCEN as a standing requirement to do business in the United States. The Reporting Rules are not optional, and they impose significant penalties for non-compliance (monetarily and imprisonment).

While the purpose of the CTA is not to compile a publicly available corporate ownership or control database, it may seem that it effectively eliminates the privacy and anonymity features individuals desire by forming a limited liability company, a limited partnership, or other corporate entity. The information required to be reported, however, is not subject to disclosure in response to requests under the Freedom of Information Act or similar laws. FinCEN is only permitted to disclose such information to certain agencies and only for limited purposes, including, for example, to financial institutions to assist in anti-money laundering activities, and to national security, intelligence, and law enforcement agencies.

Entities to Which the Reporting Rules Apply

The Reporting Rules apply to “reporting companies,” defined as foreign or domestic entities either formed in or registered to do business in the United States through the filing of a document with a secretary of state or similar authority, and include limited liability companies, limited partnerships, corporations, etc.

The CTA has exempted several types of entities from the definition of a “reporting company,” noting that many of the exempted entity types are already subject to substantial federal and/or state regulation. With respect to small businesses, relevant exemptions include:
(1) “large operating companies,” which are companies with more than 20 employees, $5M in revenue, and a physical presence in the US; and 
(2) “inactive entities,” which are companies not engaged in active business and formed before January 1, 2020, have no assets, are not owned by a foreign person, and that have not received or sent money over $1,000 or had an ownership change in the past year.
Information that Must Be Reported

Reporting companies must file a report that includes certain information about itself and each of its “Beneficial Owners” and “Company Applicants.” Beneficial Owners are generally individuals who own or control 25% or more of the entity’s ownership interests (directly or indirectly), or who exercise “substantial control” over the entity (e.g., manager of a limited liability company, general partner of a limited partnership, etc.). A Company Applicant is the individual who registers or files the formation documents for the reporting company. In addition to a manager or owner of a reporting company, a Company Applicant would also include individuals like lawyers that form or register the reporting company.

The reporting must file information including the following: full legal name; any trade name or “doing business as” name; principal place of business address; jurisdiction of formation; and taxpayer identification number.

Reporting companies must also provide the following for each Beneficial Owner and Company Applicant: legal name; date of birth; residential street address (Beneficial Owner and/or Company Applicant) or the business address (Company Applicant); and a passport or driver’s license number and a copy of the document.

Filing Deadlines

The Reporting Rules require new reporting companies (formed or registered in the US on or after January 1, 2024) to file their report with FinCEN within 30 days of formation or registration within the US. Existing reporting companies (registered in the US before January 1, 2024) must file their initial report by January 1, 2025. Existing reporting companies do not need to include information on the Company Applicant. Importantly, reporting companies have 30 days to file an update when the reporting company’s information or any of its Beneficial Owner’s information has changed.

Penalties

Failure to comply with the Reporting Rules and update or file initial reports can result in civil penalties of $500 per day of noncompliance and criminal penalties of up to $10,000 and 2 years imprisonment.

Impact and Going Forward

As detailed above, unless an exemption applies, the Reporting Rules will affect many US small business owners who may not even be aware of the CTA and Reporting Rules, yet will be subject to the associated obligations and potential liability. This is not a complete summary of the CTA and Reporting Rules and only highlights some of the central points. Earlier this year, FinCEN published beneficial ownership information reporting guidance, as well as FAQs on the Reporting Rules that include a Small Entity Compliance Guide. Even with such guidance, it still may be difficult for affected entities to correctly determine whether they are a “reporting company” or fall within an exemption. Managers and directors of entities are encouraged to begin planning now on how to best comply with the CTA if they haven’t already started.

NVIDIA and CEO Huang Face Securities Fraud Claims



In a 2-1 split, the United States Court of Appeals for the Ninth Circuit revived securities fraud claims under Section 10(b) and Rule 10b-5 against chip maker NVIDIA and its CEO, Jensen Huang – claims previously dismissed by the Northern District of California.

In their amended complaint, class action plaintiffs alleged that during the Class Period (May 10, 2017, through November 14, 2018), NVIDIA and three of its officers, including Huang, knowingly or recklessly made materially misleading or false statements regarding the impact of cryptocurrency sales on NVIDIA's financial performance in order to minimize the extent to which NVIDIA's gaming segment depended on the notoriously volatile demand for cryptocurrency. The district court dismissed both Plaintiffs’ first complaint and amended complaint on the basis that Plaintiffs failed to sufficiently plead that NVIDIA and its officers’ false or misleading statements were made knowingly or recklessly. Plaintiffs appealed.

On appeal, the Ninth Circuit reversed, in part, holding that Plaintiffs adequately alleged that (1) Huang made materially false or misleading statements and (2) Huang made those statements with the required scienter.

Falsity Allegations: Although the sufficiency of Plaintiffs’ falsity allegations was not addressed by the district court, the majority opinion placed particular importance on the fact that Plaintiffs’ outside expert arrived at the same conclusion as an independent investigation regarding crypto-related revenue during the Class Period. Both concluded NVIDIA understated its crypto-related revenues by about $1.1 billion from May 1, 2017, to July 31, 2018. Plaintiffs pointed to multiple occasions where Huang affirmatively stated that NVIDIA’s crypto-related revenues were $150 million for a quarter – actual revenue from crypto-related sales was nearly $350 million for that quarter.

Because Huang’s statements on quarterly earnings calls and subsequent interviews substantially downplayed crypto-related revenue during the Class Period, the Ninth Circuit concluded this led “investors and analysts to believe that NVIDIA’s crypto-related revenues were much smaller than they actually were.” When NVIDIA’s subsequent earnings disclosures revealed it was significantly more dependent on crypto sales than Huang previously expressed, its stock price dropped 28.5%.

The dissent was critical of the majority’s approach, pointing out that the Ninth Circuit has never allowed an outside expert to serve as the primary source of falsity allegations under the Private Securities Litigation Reform Act (PSLRA). Moreover, the dissent noted that plaintiffs’ expert did not rely on NVIDIA’s internal data or documents, but instead relied almost exclusively on generic market research and post hoc calculations.

Scienter Requirement: The Ninth Circuit majority then concluded that Plaintiffs sufficiently pled scienter under the PSLRA with respect to Huang’s statements. Here, the majority relied on confidential statements from former NVIDIA employees, who “confirmed that Huang personally reviewed NVIDIA’s sales data through [NVIDIA’s] centralized sales database” and that “Huang was the most intimately involved CEO he had ever experienced.” On this basis, Plaintiffs’ amended petition provided sufficient particularity to support the probability that a person in the position occupied by the former employees would possess the information alleged. Accordingly, the Ninth Circuit held that plaintiffs sufficiently stated a claim for relief under Section 10(b) and Rule 10b-5 against Huang and NVIDIA. The majority further reasoned that “[w]hile the PSLRA significantly altered pleading requirements in private securities fraud litigation, it did not impose an insurmountable standard.”

Going Forward: NVIDIA’s dominant position in the A.I. chip market and the promise of generative A.I.’s future development has contributed to NVIDIA’s recent $1 trillion market capitalization. In fact, NVIDIA’s stock price has increased by over 11,000% during the last ten years. Given this Ninth Circuit reversal at the pleadings stage, investors will likely fix a keen eye on how NVIDIA categorizes and discloses its revenue from A.I.-related sales.

SEC Adopts New Rules for Private Funds, but They're Less Restrictive Than Originally Proposed


In an open meeting on August 23, 2023, the U.S. Securities and Exchange Commission voted to adopt new rules for private fund managers under the Investment Advisers Act of 1940. The new Rules reflect the most substantial overhaul of private funds adviser regulation since Dodd-Frank in 2010. But they are significantly less restrictive than the version first presented for public comment in February of last year. The SEC adopted two new Rules for all private fund advisers: the “Restricted Activities Rule” and the “Preferential Treatment Rule.” For registered private fund advisers, the SEC adopted three additional new Rules: the “Quarterly Statement Rule,” the “Private Fund Audit Rule,” and the “Adviser-led Secondaries Rule,” as well as amendments to the Advisers Act Compliance Rule which is applicable to all SEC-registered investment advisers. 

Restricted Activities Rule

Intended to protect investors from certain fee and expense practices and potential conflicts of interest, this new Rule prohibits certain actions for all advisers—but with notable exceptions. This is a change from the blanket prohibition in the SEC’s original proposal. Under the new Rule—unless disclosed—advisers may not: (1) charge investors for their regulatory or compliance fees or expenses; (2) net taxes against a clawback of their carried interest; or (3) allocate or charge portfolio-level fees or expenses on a non–pro-rata basis. And without consent from a majority in the interest of private funds investors (excluding advisers’ and related persons’ interests), advisers may not charge their clients for fees or expenses associated with governmental or regulatory investigations. Nor, without such investor consent, may advisers borrow assets from their private fund clients. The Rule as adopted does not—as originally proposed—prevent advisers from seeking reimbursement, indemnification, exculpation, or limitation of liability with respect to private funds or their investors for breaches of fiduciary duty, willful misfeasance, bad faith, or negligence in connection with their services. Nor does the new Rule—as originally proposed—prohibit advisers from collecting fees for services not performed. The SEC explained, in declining to adopt an express prohibition, that this practice constitutes a breach of fiduciary duty and is therefore already implicitly prohibited. This new Rule generated the most controversy during the comment period, and its implementation as adopted represents the most significant departure among the new Rules from those that the SEC originally proposed.

Preferential Treatment Rule

Meant to ensure a level playing field for investors, this new Rule prohibits certain practices that treat certain private fund investors preferentially—unless certain exceptions are met. The new Rule generally prevents private fund advisers from allowing any investor to redeem its interests on terms reasonably expected to materially harm other investors. As proposed, there were no exceptions. As adopted, such redemption is permitted if the adviser has offered and will continue to offer the same ability to all investors, or if other binding law mandates such a redemption right for the investor. It also generally prohibits advisers from disclosing information to any investor that they reasonably expect would materially harm other investors. As originally proposed, there were no exceptions. But as adopted, the practice is permitted if the adviser discloses the same information to all interested investors. The new Rule also prohibits any other preferential treatment—unless such treatment is detailed in annual written disclosures. For current investors, the disclosures must specifically describe all preferential treatment. For prospective investors, the disclosures need only specify preferential treatment relating to material economic terms.

Quarterly Statement Rule

Aimed at increasing transparency for investors, this new Rule requires registered advisers to make quarterly disclosures about fees, expenses, performance, and potential conflicts of interest—unless quarterly disclosures complying with the Rule are already prepared by another person. The requisite quarterly statements must prominently disclose how expenses and fee offsets are calculated, as well as performance results calculated with and without capital call lines, with cross-references to funds’ governing documents. The SEC also amended Rule 204-2 to require advisers to retain books and records in connection with the preparation and distribution of these quarterly statements. When originally proposed, the Quarterly Statement Rule required disclosure within 45 days of the end of each calendar quarter. As adopted, for “funds of funds,” disclosures must be made within 75 days of the end of the first three fiscal quarters and 120 days of the end of the fiscal year. Otherwise, funds must issue their quarterly statements within 45 days of the end of the first three fiscal quarters and 90 days of the end of the fiscal year.

Private Fund Audit Rule

Intended to prevent asset misappropriation and ensure accurate valuations, this new Rule requires an annual independent financial statement audit for each registered adviser's fund that complies with Rule 206(4)-2 (the Custody Rule). But the Rule does not, as originally proposed, impose any audit requirements on top of those in the Custody Rule. Nor does it require auditors to report any issues to the SEC.

Adviser-led Secondaries Rule

Similarly intended to prevent fraud and ensure accurate valuations, this new Rule requires either a fairness or a valuation opinion from an independent provider in connection with any secondary transaction led by a registered adviser. Advisers also must provide written disclosures summarizing any recent material business relationships with the independent provider. But the Rule does not, as originally proposed, require a fairness opinion; a valuation opinion can also suffice. Nor does it apply to tender offers. And the opinion must be distributed to investors before the due date of the election form—not, as originally proposed, before the transaction closes.

Advisers Act Compliance Rule

The SEC adopted the amendments to this Rule as originally proposed, requiring all registered advisers to document in writing the annual review of their compliance policies and procedures.

Bottom Line

While the new Rules provide more transparency for private fund investors, advisers should take comfort in the fact that the Rules as adopted impose significantly less restraint than as originally proposed, and investors may likewise appreciate that the SEC incorporated feedback aimed at preventing the Rules from imposing potentially unnecessary costs on private funds.

SCOTx: No “Informal” Fiduciary Duty from Corporate Director to Shareholder, Regardless of Pre-Existing Relationship of Trust and Confidence

 

In the Matter of the Estate of Richard C. Poe

Supreme Court of Texas, No. 20-0178 (June 17, 2022)
Opinion (linked here) by Justice Huddle 

In Ritchie v. Rupe, the Texas Supreme Court held that, “[a]bsent a contractual or other legal obligation, [an] officer or director [of even a closely held corporation] has no duty to conduct the corporation’s business in a manner that suits an individual shareholder’s interests.” Instead, officers and directors owe fiduciary duties only to the corporation, itself, including “the dedication of [their] uncorrupted business judgment for the sole benefit of the corporation.” But what if a director has a relationship of trust and confidence with a shareholder that arose prior to and independent of their relationship as director and shareholder? The Supreme Court has held previously that such a relationship can give rise to an “informal fiduciary duty.” Can a director simultaneously owe both (i) conventional fiduciary duties to the corporation and (ii) an “informal” fiduciary duty to an individual shareholder, based on their pre-existing relationship? Is the latter an “other legal obligation” that is the exception to the rule as announced in Ritchie? In Poe, the Supreme Court answered, no, “a director cannot simultaneously owe these two potentially conflicting duties.” 

Richard C. (“Dick”) Poe operated several car dealerships in El Paso. He consolidated control of them in PMI, a Texas corporation, which was the general partner of several limited partnerships that, in turn, owned and operated the dealerships. Poe’s son, Richard, was the sole shareholder of PMI. But Richard gave his father, Dick, an irrevocable proxy to vote those shares, and Dick was the sole director of PMI. In 2015, Dick caused PMI to issue additional shares of stock, which he bought from PMI for $3.2 million. These new shares made Dick the majority shareholder. Son Richard was not notified of these additional shares until after Dick died, shortly after the shares were issued. Richard sued Dick’s longtime accountant, his office manager, and his attorney for, among other things, conspiring with Dick to breach his fiduciary duties both to PMI and to Richard in issuing the new shares to himself. Richard contended his father’s “informal” fiduciary duty to him, arising from their longstanding relationship of trust and confidence, triggered the “other legal obligation” language of Ritchie, meaning that Dick owed fiduciary duties to Richard, individually, as well as to PMI. 

A unanimous Supreme Court of Texas disagreed, holding that 

[A]s a matter of law, a corporation’s director cannot owe an informal duty to operate or manage the corporation in the best interest of or for the benefit of an individual shareholder. A director’s fiduciary duty in the management of a corporation is solely for the benefit of the corporation. 

Because the trial court erred by allowing the jury to decide about the existence and breach of an alleged “informal” fiduciary duty from Dick to Richard, the Supreme Court reversed and (i) rendered judgment against Richard on his claims for breach of an “informal” fiduciary duty, and, (ii) because of other errors in the charge, remanded for a new trial on the remaining issues.



SCOTUS Cuts Burden for Showing Waiver of Arbitration


Morgan v. Sundance, Inc.
United States Supreme Court, No. 21-328 (May 23, 2022)
Unanimous opinion by Justice Kagan, linked here

Based on the widely acknowledged “strong federal policy favoring arbitration” under the FAA, the great majority of federal courts have for many years held that a party impliedly waives its right to compel arbitration by “substantially invok[ing] the judicial process” on matters ostensibly subject to arbitration only if in doing so it “thereby causes ‘detriment or prejudice’ to the other party.” Salas v. GE Oil & Gas, 857 F.3d 278, 281 (5th Cir. 2017) (relying on Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)). That is no longer the law in federal court. After acknowledging that at least nine federal circuits—including the Fifth—were applying this rule, the Supreme Court in Sundance decreed that these courts were wrong to craft and impose an “arbitration-specific waiver rule demanding a showing of prejudice.” “The FAA’s ‘policy favoring arbitration,’” it said, “does not authorize federal courts to invent special, arbitration-preferring procedural rules.” Instead, “the federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” Consequently, whether a party has waived its right to arbitrate by invoking or participating in the judicial process is to be judged by the same standard applied to all other contractual rights—i.e., whether that conduct amounts to “the intentional relinquishment or abandonment of a known right,” without reference to whether it has caused any prejudice to the other side.

The Supreme Court’s Sundance ruling was directed to federal courts applying the FAA. But its effect will be even more pervasive. Most state courts also now include a “prejudice” component in their tests for determining whether a party has impliedly waived arbitration. In Texas, for example, “[a] party asserting implied waiver as a defense to arbitration has the burden to prove that (1) the other party has ‘substantially invoked the judicial process,’ which is conduct inconsistent with a claimed right to compel arbitration, and (2) the inconsistent conduct has caused it to suffer detriment or prejudice.G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 511-12 (Tex. 2015).  These state-court precedents will have to be reexamined and many likely will fall, just like the scores of federal decisions directly overruled by Sundance. Because the Court’s rationale rested in part on the absence of any support in the FAA for courts to create this arbitration-specific test, it is reasonable to assume that state courts will follow Sundance when applying the FAA. But even where state arbitration statutes are concerned, Sundance likely will force a reassessment. Again using Texas as an example, the Texas Arbitration Act is based on the Uniform Arbitration Act, as are the arbitration statutes of most other states, and the Texas Supreme Court has stressed “the importance of keeping federal and state arbitration law consistent.” Perry Homes v. Cull, 258 S.W.3d 580, 594 (Tex. 2008). Texas appeals courts have flatly said,  “The standard for determining waiver of the right to arbitration is the same under both the Texas General Arbitration Act and the Federal Arbitration Act.” E.g., Sedillo v. Campbell, 5 S.W.3d 824, 826 (Tex. App.—Houston [14th Dist.] 1999, no pet.). The change wrought by Sundance, therefore, likely will be felt not only in the federal system, but throughout the fifty states.  


Mandamus Relief for Denial of Advancement of Defense Costs


In re DeMattia
Dallas Court of Appeals, No. 05-21-00460-CV (April 12, 2022)
Justices Schenck, Nowell (Opinion, linked here), and Garcia 

Mark DeMattia co-owned Restoration Specialists, LLC and served as its managing member. In 2018, he sold the company. But a few days before the closing, he allegedly copied or deleted certain files. Under its new owners, Restoration later sued DeMattia, alleging breach of fiduciary duty and misappropriation of trade secrets.

DeMattia, in turn, demanded that Restoration indemnify him and advance his defense costs, pursuant to Restoration’s corporate regulations. The Texas Business Organizations Code allows LLCs to indemnify and advance defense costs, through their organizing documents, to both current and former officials and governing persons. After Restoration denied his demand for advancement, DeMattia counterclaimed and moved for summary judgment. Restoration responded that the advancement provision in the company regulations, by its terms, did not apply to former managers like DeMattia. The trial court denied DeMattia’s motion.

DeMattia sought mandamus relief in the Dallas Court of Appeals. Applying contract interpretation principles, the Court held that the advancement provision in Restoration’s corporate regulations did cover former managers like DeMattia, so the trial court erred by denying DeMattia’s motion for summary judgment. The Court also rejected Restoration’s argument that DeMattia’s “unclean hands”—his alleged misappropriation and breach of fiduciary duty—barred advancement as a matter of public policy. The Court explained that every lawsuit involves allegations of wrongdoing, so denying advancement based mere allegations of unclean hands would render the right to advancement a nullity. Finally, the Court held DeMattia did not have an adequate remedy by appeal, a requirement for mandamus relief. The right to advancement can be satisfied only during proceedings in the trial court, so proceeding to trial without advancement, when a party is entitled to advancement, would defeat the right to advancement. Therefore, the Court ordered the trial court to vacate its denial of summary judgment and issue an order granting DeMattia’s motion.

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