In Sun-Times Media Group Inc. v. Black, 2008 WL 2933093 (Del. Ch., July 30, 2008), read opinion here, the Delaware Chancery Court once again was called upon to address issues involving Lord Conrad Black and his onging legal battles related to his publishing empire and affiliated entities. In this latest iteration, the issue was whether Lord Black:
was entitled to advancement of the millions in legal fees he has incurred, in light of the particular factual and procedural posture presented, pending his appeal of a conviction by a federal court in Chicago. Here is a link to posts about prior court decisions and factual background–as well as a video clip on this blog of part of the oral argument leading up to this instant decision. ( Hollinger, a corporate party in several of the prior court decisions, was the former name of the entity now known as Sun-Times.)
The court’s own pithy formulation of the issue, and the holding, is as follows:
The crux of this dispute is the meaning of the words “the final disposition of such action, suit or proceeding” in the Sun-Times bylaws and § 145(e) of the Delaware General Corporation Law (the “DGCL”). Those words describe the point after which the Sun-Times is no longer obliged to continue advancing fees and expenses to the defendants under the advancement provision in its bylaws. The Sun-Times argues that the final disposition of a criminal proceeding occurs at the time of sentencing at the trial court level. The defendants argue that the final disposition of a proceeding FN2 does not occur until the final, non-appealable conclusion to that proceeding. After considering the language of the bylaws and § 145, the parties’ course of performance under the Sun-Times bylaws, and the practical and policy considerations related to the definition of that language, I conclude that the final disposition of a proceeding in this context is the final, non-appealable conclusion to that proceeding.
This thorough decision (over 70 pages in its original format) could be the subject of a law review article instead of a short blog post. For now, I can only whet your appetite to read the whole magnum opus at the above link. In technical terms, this is red meat for the cage of anyone who has reason to (or wants to) keep up to date on the cutting edge developments in the law relating to the rights (and defenses) to advancement of legal expenses for former directors of a company.
The court referred to the far-ranging importance of the specific issue decided, with the following description of what it was called upon to decide:
The core dispute between the Sun-Times and the defendants is over an issue that is relevant to virtually all corporations, directors, and officers who are affected by the advancement and indemnification provisions of § 145 of the DGCL. Although cast in terms of the specific Sun-Times’ Advancement Provision, the parties’ disagreement about the meaning of “final disposition,” “action, suit or proceeding,” and “defending” are a dispute over § 145 because the use of those terms in the Advancement Provision parallels the use of those terms in § 145(e). FN37 The Sun-Times Certificate makes clear that this dispute is a dispute about the extent of § 145 because it grants advancement and indemnification rights to its officers and directors “to the fullest extent permitted by applicable law.”FN38 Reduced to its core, the question is whether advancement and ultimate indemnification rights turn on every provisional ruling at various stages of the underlying action, suit or proceeding or whether they turn on only the final, non-appealable resolution of the underlying action, suit or proceeding.
A key part of the factual terms interpreted by the court include the following provisions:
"… The Sun-Times’ Bylaws (the “Bylaws”) also provide for mandatory advancement of attorneys’ fees and expenses to directors and officers upon the receipt of an undertaking.
Under the Advancement Provision, advanced funds must be repaid to the Sun-Times if it is “ultimately determined” that the director or officer who received those funds is not entitled to be indemnified. The Bylaws condition indemnification on the state of mind of the director or officer and make clear that, among other things, the mere fact of a conviction of any kind does not create a presumption that the director or officer acted with a non-indemnifiable state of mind. …."
"Course of performance" as a contract interpretation tool was an important part of the court’s analysis. In particular, the court observed that:
When the terms of an agreement are ambiguous, “any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.”FN71 Here, the course of performance of the Advancement Provision is compelling and suggests that the Sun-Times interpreted that Provision as providing advancement through the appellate process. Directly on point is that the Sun-Times advanced funds to Black for his appeal of this court’s “Order and Final Judgment” awarding injunctive, declaratory, and monetary relief against Black.
The court also discussed at length the policy implications of its decision, and reasoned, in part, as follows:
As an interpretive matter, it is also important to consider the practical implications of the Sun-Times’ position. The system of advancement and indemnification that would result from the Sun-Times’ interpretation of final disposition as the final judgment at the trial court level would be odd, complex, inefficient, and capricious. Moreover, it is difficult to grasp completely because the Sun-Times is not entirely clear in explaining how that system would work. Nevertheless I attempt to explain that system and its consequences to show why it is that the final disposition of a proceeding must be the final, non-appealable conclusion of that proceeding
There is much more than can be said and that should be said about this decision of far-reaching importance, but on this Sunday summer afternoon, duty calls me to other obligations, though I hope to return to this case later.