In Jackson Walker L.L.P. v. Spira Footwear Inc., 2008 WL 2487256 (Del. Ch., June 23, 2008), read opinion here, the Delaware Chancery Court ruled on the following issue of first impression in connection with interpreting advancement rights under DGCL Section 145:
The crux of this case is whether Jackson Walker’s actions as Spira’s outside litigation counsel constitute actions of an agent of the corporation under the Bylaws and DGCL § 145. This appears to be an issue of first impression under Delaware law.
The court reasoned that the Jackson firm was entitled to advancement as an agent under Section 145 based on the claims against it relating to the role in which it was sued by the company.
There have been quite a number of Chancery decisions about advancement over the last week or so, and this is the third Chancery Court opinion in as many days on the issue of advancement–and two of the decisions on the same day were by the same vice chancellor.
The factual background in this matter relates to litigation in Texas in which the Jackson firm was representing Spira during a control contest. After a new majority took over Spira, they fired the Jackson firm and then sued the Jackson firm claiming that despite following the instructions of the management in control of Spira at the time, those actions were not in the best interests of Spira. In effect, the argument was that the Jackson firm should have second-guessed management about what was in the company’s best interest. As the court described the claims, which did NOT involve malpractice, for purposes of deciding the issue of agency:
The alleged wrongs for which Spira has sued Jackson Walker all represent instances where Jackson Walker acted on behalf of Spira in relations with third parties. As outside litigation counsel, Jackson Walker was Spira’s agent because it had the “power to act on behalf of the principal with third persons.” Trial lawyers have the ability to bind their client in dealings with the court and other parties to the litigation
Central to the court’s analysis was a prior Chancery decision involving an attorney who sought advancement, but unlike the Jackson firm in this case, that attorney was not acting as outside litigation counsel:
Both parties rely on this court’s decision in Fasciana v. Electronic Data Systems Corp.,50 for their positions as to why Jackson Walker does, or does not, qualify as Spira’s agent. In that case, the plaintiff Fasciana was an attorney who represented a target company and its shareholders in connection with its sale to the defendant corporation.
By and large, Fasciana performed corporate transactional work. After the acquisition, Fasciana continued to provide legal advice and services as an attorney for the defendant corporation. Later, based on certain actions he took in connection with the sale of the target company, he was indicted on criminal charges and named as a defendant by the acquiring corporation in a civil suit, alleging malpractice and fraud on his part, together with other misdeeds. In seeking advancement of his litigation expenses, Fasciana contended that, based on his actions as an attorney for the acquiring corporation, he satisfied the statutory term, “agent,” and thus had a right to advancement.
The court in Fasciana noted that the “term agent is thrown around in many legal contexts and often without great precision,” but held that the Delaware General Assembly intended “§ 145 as embracing the more restrictive common law definition of agent, which generally applies only when a person (the agent) acts on behalf of another (the principal) in relations with third parties.” The court further noted that Section 145’s grant of indemnification tracks the concept of agent indemnification found in agency law. Thus, a person may be an “agent” for purposes of Section 145 when she may otherwise look to her principal for indemnity for those acts within the scope of the agency that are fairly said to be the actions of the principal. Conversely, the court held the concept of an “agent” under § 145 does not include a lawyer who acts as a legal advisor to a corporate client, but does not act on the client’s behalf in relations with third parties. (most footnotes omitted from quote).
50. 829 A.2d 160 (Del. Ch. 2003).