Posts tagged Advancement Rights

Court Of Chancery Resolves Allocation Issues In Advancement Case

Weil v. Vereit Operating Partnership LP, C.A. 2017-0613-JTL (February 13, 2018)

This decision clearly sets out how to allocate fees for claims subject to advancement of attorney fees from those that are not covered by an advancement obligation. In particular it details how allocation questions should be answered  and how disputes over the amounts to be paid should be resolved. More ›

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Court Of Chancery Denies Advancement “As Incurred”

HOMF II Investment Corp v. Altenberg, C.A.2017-0293-JTL (Transcript December 13, 2017)

A provision in an LLC agreement that provides for “indemnification" “as incurred” does not provide for advancement. This illustrates that the confusion between advancement and indemnification still exists. If you want advancement, you had better say “advancement.”

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Court Of Chancery Interprets Claimed Advancement Waiver

Davis v. EMSI Holding Company, C.A. 12854-VCS (May 3, 2017)

This decision explains how to obtain a release of advancement rights from a seller in an agreement to purchase his company. Here that effort failed. However, buyers will continue to not want to have to advance the sellers’ fees if there is a later dispute between them over the transaction. That can happen when the seller is a corporate officer or director and the acquired company’s bylaws confer a broad right to advancement for them. Apart from the obvious point that better drafting helps, the key is to be sure to directly address any rights in the acquired company’s bylaws or employment agreements to be sure those rights are waived. While the noted Cochran case limits advancement rights when the seller has not acted in his capacity as an officer or director, it is hard to fit within that decision’s holding given how much it has been limited over time. This decision explains those limits very well.

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Court Of Chancery Gives Definitive Explanation On Advancement Procedures

White v. Curo Texas Holdings LLC, C.A. 12369-VCL (February 21, 2017)

Once the right to have fees advanced has been determined, the tricky issue is how to decide if the actual fees requested fall within the scope of the advancement rights. The Court of Chancery has adopted what is known as the Fitracks procedure, where the bills are subject to a meet and confer process with a set of rules to guide the outcome. This decision provides what may well be the definitive explanation of how that process is supposed to work, including how to resolve disputes at the advancement stage and what objections actually can be made to payment.

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Court Of Chancery Upholds Indemnification Rights Not Expressly Subject To Arbitration

Jiampietro v. The Goldman Sachs Group Inc., C.A. 12601-VCL (Transcript, August 11, 2016)

Many employment agreements require that any dispute be arbitrated. But when the dispute is over the employee’s right to indemnification under bylaws or statute, then the arbitration clause better expressly cover that claimed right or otherwise the non-contractual right remains for a court to decide.

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Court of Chancery Explains How To Apply Multiple Advancement Rights

Narayanan v. Sutherland Global Holdings Inc., C.A. 11757-VCMR (July 5, 2016)

This detailed decision explains how to interpret multiple sources, such as bylaws and contracts, to determine any conditions to the right to have attorney fees advanced. Absent some provision that ties each source together, each acts as an independent right to advancement. Thus, a condition imposed by one source is not a condition to advancement under an independent source of that right.

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Court Of Chancery Explains Limits On Discovery In Advancement Case

Harrison v. Quivus Systems LLC, C.A. 12084-VCMR (April 7, 2016)

This is an interesting bench ruling because it illustrates the limits on discovery into the reasonableness of the fees sought in an advancement case. In general, that discovery will be postponed until after the Court determines there is a right to advancement.

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Court Of Chancery Explains Advancement Rights Of Former Director

Marino v. Patriot Rail Company LLC, C.A. 11605-VCL (February 29, 2016) 

As is well known, a former director may be entitled to have his fees advanced in suits against him even after he has resigned from the board. This decision explains the history behind those rights and how they have been steadily expanded over the years. It upholds advancement for acts committed as a director but not for post-resignation acts. It also sets out yet another way in which disputes over the amounts to be advanced will be determined.

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Court Of Chancery Explains When Director May Bring An Advancement Case

IN RE Genelux Corporation, C.A. 10612-VCP (October 22, 2015)

This is another example of when a director may seek advancement when he is acting affirmatively and not merely as a defendant.

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Court Of Chancery Explains “By Reason Of The Fact” Test

Lieberman v. Electrolytic Ozone Inc., C.A. 10152-VCN ( August 31, 2015)

Former directors are entitled to advancement when they are sued “by reason of the fact” that they acted as directors in committing allegedly bad conduct. That test can be hard to apply. However, as this case makes clear, when the underlying acts occurred post-termination, it is hard to claim that advancement is warranted.

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Court Of Chancery Explains Apportionment In Advancement Case

Holley v. Nipro Diagnostics Inc.,  C.A. 9679-VCP (August 14, 2915)

Not infrequently, a former director may seek to have his attorney fees advanced in two pending matters, only one of which is covered by a corporation’s advancement obligations. An example would be an SEC action coupled with a separate criminal case.  More ›

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Court Of Chancery Determines That Advancement Claim Is A General Creditor Claim

Andrikopoulos v. Silicon Valley Innovation Company LLC, C.A. 9899-VCP (July 30, 2015) and Henson v. Sousa, C.A. 8057-VCG (August 4, 2015)

These two decisions hold that an advancement claim should be treated as a claim of a general creditor by a company in liquidation. Hence, those claims do not get priority in payment along with administrative expenses of the receivership.

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Court Of Chancery Limits Conditional Advancement Contracts

Blankenship v. Alpha Appalachia Holdings Inc., C.A. 10610-CB (May 28, 2015)

Corporations continue to regret conferring broad advancement rights on their former directors. This is yet another example of an effort to get out of that obligation. More ›

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Court Of Chancery Explains The “Personal Claim” Exception To Advancement Rights

Mooney v. Echo Therapeutics Inc., C.A. 10054-VCP (May 28, 2015)

In the area of what claims are subject to the right to have fees advanced to a former officer or director, there is no more often disputed issue than whether the claim asserted arose out of the role as an officer or director or was instead a “personal” claim. This may be the definitive decision on how to decide that issue. More ›

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Court of Chancery Rejects Limits on Advancement Rights

Authored By Lewis Lazarus This article was originally published in the Delaware Business Court Insider | October 1, 2014 {Note the decision discussed in this article was certified to the Delaware Supreme Court on October 6, 2014.} By statute and case law, Delaware has long protected the rights of officers and directors to advancement of fees and expenses incurred defending claims arising out of the officers and directors' service. The public-policy rationale is that in the absence of such protection, qualified individuals would be reluctant to serve in management positions. Corporations whose documents are expansive in providing advancement, however, often are less generous when the time comes to advance company funds to someone the company believes has misused his or her position to the detriment of the company and its stakeholders. While a substantial body of case law has clarified many of the circumstances where directors and officers are entitled to advancement over the company's objections, issues continue to arise that enable the court to provide fresh guidance. The recent case of Pontone v. Milso Industries, C. A. No. 8842-VCP (Del. Ch. August 22, 2014), sheds light on the nature of claims entitled to advancement, whether a right to third-party advancement vitiates a director or officer's entitlement to advancement from the corporation itself, and the type of counterclaims that are subject to advancement. More › Share