Generally, a successful claim for advancement of legal fees for a former director or officer entitles the prevailing party to “fees on fees” incurred for obtaining the favorable ruling. A recent ruling from the newest member of the Delaware Court of Chancery explains the limitations or the contours of that general rule. In Wong v. USES Holding Corp., C.A. No. 11475-VCS (Del. Ch. April 5, 2016)(“Wong II“), the court denied a motion for reargument of a prior ruling on that issue by the most recently retired member of the court. Wong v. USES Holding Corp., C.A. No. 11475-VCN (Del. Ch. Feb. 26, 2016)(“Wong I“).
This useful decision concerning this perennial issue in corporate litigation can be most easily highlighted by noting that the issue addressed was: when the “fees on fees” started to accrue. After a thoughtful review of both the controlling bylaws and DGCL Section 145 (e), the court reasoned that the obligation of the corporation to advance fees, and thus the triggering of the fees on fees, did not commence until the required undertaking by the former officer was submitted.
This pithy decision deserves a place in my annually updated chapter in a book published by the ABA that provides an annual review of the key decisions from Delaware and around the country on the topic of advancement and indemnification of directors and officers. The 2016 edition with 2015 cases is expected to be available imminently from the ABA and was co-written by yours truly along with my colleagues Gary Lipkin and Aimee Czachorowski. Information about the last publication is available at this link.
Supplement: Frank Reynolds of Thomson Reuters has published an article about this case that provides more factual background and practical insights.