Mixedbread AI loses bid to block fired CTO’s legal fee claim

After the termination, the former CTO sued in the US District Court for the Northern District of California, alleging breach of his employment agreement. Mixedbread AI filed three counterclaims and sixteen affirmative defenses, then dropped the counterclaims. The defenses stayed. 

In April 2026, the former CTO went to Delaware Chancery seeking advancement under Section 6.3 of the company’s bylaws – a provision that requires the corporation to pay defense costs upfront, with repayment due only if a court ultimately rules the officer was not entitled to indemnification. 

A Magistrate in Chancery sided with him in an August 2026 report. Mixedbread AI filed exceptions two days later. 

The company’s first argument: responding to affirmative defenses is not “defending” under the bylaws, so no advancement is owed. The court pointed to decade-old Chancery precedent holding that advancement extends to fees incurred defending against affirmative defenses that implicate an officer’s corporate performance. The company urged the court to overturn that precedent. The court declined. 

Its second argument: the expenses were not incurred “by reason of” the former CTO being a corporate agent. The court was unconvinced. He could disparage the CEO to officers, directors, and investors because his CTO role gave him access. He could shape the work environment because he was a senior officer. The alleged conduct was inseparable from the corporate position.