An associate in the Delaware office of Eckert Seamans prepared this overview.
The Court of Chancery opinion in Horne v. OptimisCorp, C.A. No. 12268-VCS (Del. Ch. Mar. 3, 2017) explores Delaware’s indemnification provisions.
Background: Plaintiff William Horne (“Horne”) brought an action for indemnification for fees and expenses against OptimisCorp (the “Company”). Horne’s fees stemmed from an action brought against him by the controlling stockholder of the Company, Alan Morelli (“Morelli”), which alleged Morelli was wrongfully removed from the board of directors and as the Company’s CEO. After a six-day trial, the Court of Chancery found that Morelli failed to prove any of his claims. Horne then filed for indemnification of his expenses incurred to defend the action brought by Morelli. The Company opposed those expenses, arguing that they were not incurred by reason of the fact that Horne was an officer of the Company, and also that the amount of fees was unreasonable.
Analysis: The court began its analysis by quoting DGCL Section 145(c), which states in part that present or former officers and directors that have been successful on the merits or otherwise shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred.
To determine whether Horne can satisfy the “by reason of the fact” standard, the court explained that only a nexus or causal connection between the underlying proceedings and one’s official corporate capacity is needed. This test was easily met by Horne, because claims were brought against him for breach of fiduciary duty in his role as the Company’s CFO. A claim for aiding and abetting was also brought “by reason of the fact” that Horne was the CFO, because the underlying conduct was consistent with his fiduciary duties.
Moving to reasonableness of the fee amount, the court stated that it considers three factors: (1) whether the expenses were actually paid; (2) if the services were in good faith, thought prudent, and appropriate by competent counsel; and (3) the rates charged were comparable to similar circumstances.
The Company only challenged the second factor. The Company asserted that Horne’s litigation strategy racked up a considerable amount in fees, but was largely abandoned prior to trial. The court remarked that it would review a litigation strategy only if those decisions are “unmistakably unreasonable.” And the court will not engage in a line-by-line review of bills. Therefore, the court rejected this argument in whole and award Horne with full indemnification.