In Schoon v. Troy Corp., (Del. Ch., March 28, 2008), read opinion here, the Delaware Chancery Court granted advancement rights to one of the plaintiffs, but denied it to the other, based primarily on the wording of the relevant bylaws as construed through the applicable statute and case law. Moreover, although "fees on fees" are allowable to reimburse the party who sought advancement for the fees incurred to obtain that relief, in this case only one of the parties seeking advancement was awarded it, so the court discounted the fees granted to that effect.
Some or all of the parties in this case have been the subject of a least four (4) prior written decisions by either the Delaware Supreme Court or the Delaware Chancery Court and the blog summaries for those cases are available at this link.
The money quote from the instant case follows:
Troy argues that under Fasciana v. Electronic Data
Systems FN87, indemnification in the circumstance must
be proportionate to the plaintiffs’ success,
notwithstanding the terms in the bylaws. According
to the plaintiffs, the language in the bylaws providing
for indemnification “if successful in whole or in part”
distinguishes Fasciana and requires full
indemnification regardless of their success.
FN87. 829 A.2d 178.
In Fasciana, the controlling provision generally
established indemnification “to the fullest extent,
permitted by Section 145 of the [Delaware General
Corporation Law]….”FN88 Significantly, based on this
language the plaintiff in Fasciana made a
substantially similar argument as Schoon and Bohnen
do here, that they are entitled to all fees incurred in
enforcing the advancement provision, regardless of
success. The Fasciana court responded:
FN88. Id. at 182.
Fasciana’s rule would encourage attorneys for
parties seeking advancement to raise any
conceivable argument that can pass Rule 11 muster
knowing that any level of ultimate success would
warrant a full fees on fees award. Limiting fees on
fees awards by imposing a proportionality
requirement encourages parties seeking
advancement or indemnification to raise only
substantial claims and encourages corporations to
compromise worthy claims … and resist less
FN89. Id. at 184.
This makes clear that the plaintiffs here are restricted
to an award that is proportionate to their success in
This award must adhere to the recognized principle in
Fasciana, that courts “should only award that amount
of fees that is reasonable in relation to the results
obtained.”FN90 Therefore, this court will discount the
plaintiffs’ costs in prosecuting this action by half to
account for the result concerning Bohnen.
UPDATE: Here on Kevin La Croix’s D & O Diary is a characteristically thorough analysis of another aspect of the case that I did not focus on but that is also important. Namely, the Chancery Court confirmed that companies may terminate advancement rights, even after an officer or director leaves the company (assuming no contractual right is violated), as long as the advancement right was not triggered prior to the termination of that benefit by the company. Note to officers and directors: Make sure your advancement rights are protected by a contract that does not allow the company to terminate them unilaterally.
SUPPLEMENT: On Nov. 13, 2008, the Delaware Supreme Court issued an Order, here, denying a request by the National Association of Corporate Directors, as an amicus curiae, to submit arguments on the appeal–after the case was settled and the Court had already dismissed the case due to the settlement. They argued that due to the public policy issues involved, the court should still allow the case to be argued anyway, but there was no procedural basis for the court to retain any type of jurisdiction after the case had already been dismissed and settled.