Reddy v. Electronic Data Systems Corp.

Michael Reddy (plaintiff) was the largest shareholder of FACS Incorporated (FCI) when Electronic Data Systems Corporation (EDS) (defendant) bought FCI under an agreement with an earnout provision. The agreement provided an initial payment of $9 million to FCI shareholders, with an additional $3 million held in escrow by FCI’s attorney that former FCI shareholders could earn if FCI met performance targets. Reddy became an employee of a new EDS division created to operate FCI’s business Global Financial Markets Group (GFMG). EDS also gave Reddy an incentive-compensation agreement that provided EDS would pay Reddy and other former FCI shareholders an additional $14 million in incentive-compensation payments over three years depending on GFMG’s earnings. Six years later, a federal prosecutor charged Reddy with conspiracy, mail fraud, and wire fraud alleging Reddy and FCI’s attorney manipulated EDS’s financial records to increase amounts Reddy and other former FCI shareholders received from the escrowed funds and incentive-compensation payments. EDS also brought a civil action against Reddy, seeking tens of millions of dollars to recoup supposed overpayments. EDS’s bylaws entitled employees to indemnification and advancement “to the fullest extent permitted by Section 145” of the Delaware General Corporation Law (DGCL). EDS refused to advance Reddy’s attorney’s fees, and Reddy sued. EDS requested dismissal, while Reddy requested summary judgment.