We have summarized many Delaware decisions on this blog regarding the issue of advancement of fees for the benefit of officers and directors of companies who have been given that right by either contract or bylaws or corporate charter, as authorized by the Delaware General Corporation Law–and as distinguished from indemnification, which generally is not triggered until after the litigation is concluded, and after potentially millions of dollars in fees have been incurred.
Kevin LaCroix on his highly regarded blog, The D & O Diary, here, provides a current example and analysis regarding the former CEO of Countrywide, who is presumably entitled to advancement by Bank of America, the new owner of Countrywide, contrary to what the average person not well-versed on the topic might initially think based on the mass media’s insinuations of the CEO’s culpability–which is not terribly relevant at the advancement stage, as compared to the indemnification stage. Thus, hypothetically, an officer accused of embezzlement from his company may be entitled to advancement by that company of the reasonable defense costs of the officer who is defending a suit regarding the alleged embezzlement. Kevin explains why the law may require a result that sounds strange to the average person.
UPDATE: Kevin LaCroix provides a contrasting post here regarding a recent decision (from yesterday), of the U.S. Court of Appeals for the Eleventh Circuit that upheld a trial court ruling that denied advancement rights to former CEO of HealthSouth, Richard Scrushy, (apparently despite Delaware law), as part of a class action settlement on the theory that the public policy in favor of settlements was more important than upholding advancement rights. Now I readily acknowledge that the preceding sentence may be an oversimplification of the court’s decision, so I encourage you to read the entire decision and Kevin’s insightful and thoughtful summary at the above link. Bottom line: the court gave short shrift to the importance of advancement rights–and the reality that such rights are in many cases the only thing that stands between a person’s ability to defend themselves in court and not allowing any meaningful defense whatsoever.