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Court Of Chancery Upholds Voluntary Advancement Provisions Irrespective Of Alleged Wrongful Conduct

Radiancy, Inc. v. Zion Azar, et al., C.A. No. 1547-N, 2006 WL 224059 (Del. Ch. Jan. 23, 2006). This is a summary judgment motion for advancement of legal fees made by defendant-officers. Their corporation alleged fraud, fiduciary violations and usurpation of corporate opportunity against defendants as a bar to advancement. Defendants replied with counterclaims under their respective employment contracts. The motion was granted and denied in part. This opinion summarizes the courts summary judgment partly favoring three defendants' advancement claims under 8 Del. C. §145. The court observed that: (1) voluntary advancement provisions cannot later be retracted on grounds of wrongful conduct; (2) mere referencing of employment contracts will not entitle advancements; (3) affirmative claims based on employment agreements are not eligible under the by-laws; (4) whether advancement is due requires consideration of: (a) any differentiation between officers/directors and employees/agents "serving at the request" of the corporation; (b) time of occupancy of officer/director position; and (c) whether the defendants became directors/officers of the subsidiary at the request of the parent corporation sponsoring the advancement provisions. The court examined the relevant provisions holding that: (1) for non-officer conduct predating June 1, 2004 defendants' were not entitled to advancements; (2) Delaware requires officer designation in charter or by board vote; (3) official and personal roles must be distinguished to ensure clever labeling would not deprive rightful officer beneficiaries from entitled advancements. The court also awarded defendants fees on fees for bringing the matter to fruition through their summary judgment motion on the corporate allegations. Authored by: Raj Srivatsan 302-888 6831 rsrivatsan@morrisjames.com Share

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