A recent decision by the Delaware Court of Chancery contrasted the difference between advancement rights based on an L.P. agreement as compared to the right of a corporate director or officer to receive advancement of fees and costs to defend a lawsuit. In Weil v. VEREIT Operating Partnership, L.P., C.A. No. 2017-0613-JTL (Del. Ch. Feb. 13, 2018), the court also distinguished between the different procedural and substantive aspects of an indemnification claim as compared to an advancement claim. This opinion provides important statements of the law and nuances of practical value to those engaged in this frequent subject of Delaware corporate and commercial litigation.

Also, unlike the claims in the context of an alternative entity such as an L.P. agreement, Delaware General Corporation Law (DGCL) Section 145 provides certain “default boundaries” that are not necessarily applicable to an advancement claim based on pure contract terms in the L.P. context. Unlike rights based on an L.P. agreement, generally speaking, once there is an advancement right in the corporate context, DGCL section 145 imposes certain restrictions on the corporation that attempts to deny those rights. See, e.g., one of the three decisions in the Holley v. Nipro cases highlighted on these pages. The Holley decisions provide helpful basic and nuanced principles on this topic.

For those who need to know the latest iteration of Delaware law on advancement and how it differs from indemnification in the L.P. context, this 37-page opinion with over 70 footnotes is required reading. For purposes of this short blog post that is intended for busy corporate litigators, I provide highlights of the decision:


  • The procedural context of this case was a motion for summary judgment which featured 55 exhibits. There were multiple parties involved and several different entities–only some of whom were entitled to advancement or indemnification under the applicable alternative entity agreements.
  • Because this advancement claim was based on an alternative entity agreement, as opposed to corporate documents that were subject to the default constraints of DGCL section 145, the primary framework of the analysis was contractual and not statutory. The court provides a comprehensive review of the detailed factual setting which is necessary to grasp for a complete understanding of the case.

Key Legal Principles:

  • The court referred to Section 17-108 of the Delaware Revised Uniform Limited Partnership Act which gives a limited partnership the power to indemnify any partner or other person, and also includes an empowerment to provide for advancement. Section 17-108 defers completely to the contract of the parties to create rights and obligations with respect to indemnification and advancement of expenses.
  • Importantly, Section 17-108 of the LP Act gives limited partnerships wider freedom of contract to draft their own framework for indemnification and advancement than is available to corporations under Section 145 of the DGCL, which creates mandatory indemnification rights for corporate indemnities in some circumstances–and also bars indemnification in others. See footnote 8 for supporting cases.
  • The court provided a thorough contractual analysis of the advancement and the indemnification provisions in the LP agreement. The court noted the tension and lack of consistency in the LP agreement between the provisions for advancement and the legally quite distinct conceptual analysis of indemnification. The agreement here appeared to describe differently those covered by advancement and indemnification.
  • The court emphasized the important distinctions between an analysis for advancement, which is a summary proceeding where the only question involves the extension of credit, and a completely separate procedural and substantive analysis of indemnification.
  • In advancement cases, when there is an issue whether someone is sued in a covered or non-covered capacity, the court will generally resolve the doubt in favor of advancement, and defers until the subsequent indemnification analysis whether or not the advanced funds might later be subject to disgorgement if a party is later determined to be ineligible for indemnification. See footnotes 20 through 23.
  • The court distinguished the case of Fasciana v. Electronic Data Systems Corp. (“Fasciana I”) 829 A.2d 160 (Del. Ch. 2003), because that case dealt with the determination of who was a “agent” for indemnification purposes under Section 145, but this case focuses on advancement.
  • Based on the contractual basis on which the advancement claims were made in this case, the court analyzed and applied the defined terms, whose definitions were not the model of clarity. See footnotes 28 and 29 and accompanying text.

Specific Disputes About Allocation of Which Fees are Covered

  • Although the parties seemed to acknowledge that there was a right to some advancement, the challenges were based on whether or not all of the fees demanded were properly allocated among covered and non-covered proceedings, as well as covered and non-covered persons.
  • Consistent with prior case law, the court explained that the court will not engage in a line by line review of bills to determine if allocation was proper between covered and non-covered persons or proceedings, and will rely on the certification of senior counsel involved at the advancement stage of the proceedings.
  • The court will wait for the indemnification stage to determine a more specific allocation of what fees were incurred for covered parties and which would be allocated to non-covered parties. See footnotes 33 to 39 and accompanying text.
  • Nonetheless, the court emphasized that an effort must be made to allocate fees, to the extent possible, between those incurred for covered persons and underlying covered proceedings, and those fees incurred for persons or proceedings that are not covered by advancement. See footnote 40.

Unilateral Imposition of Conditions to Payment Rejected:  

  • This is an important principle that should have widespread application even outside the alternative entity context: A company cannot unilaterally impose conditions on advancement that are not contained in the underlying documents on which advancement is based. For example, in this case the court rejected efforts by the company to impose a litigation budget or impose billing guidelines as a condition for advancement because those conditions were not included in the advancement provision of the LP agreement. See footnotes 46 to 48 and accompanying text.
  • Likewise, the court rejected an argument that a company could refuse to pay for annual increases in hourly rates. No such limitation was in the L.P. Agreement.
  • Regarding invoices from third-parties, the court determined that at the advancement stage, it was sufficient to rely on the verification of a senior attorney involved that those invoices were necessary and reasonable.

Reasonableness of Total Fees:

  • The limited partnership agreement allowed for advancement of “reasonable expenses.” Consistent with Court of Chancery Rule 88, as well as Delaware Lawyers’ Rule of Professional Conduct 1.5(a), the court explained that the fees requested must be reasonable in amount based on the eight factors applied under Rule 1.5(a) to make that determination.
  • Nonetheless, the court will not review each line item or time entry and disbursement, nor will it second-guess the judgment of lawyers on the appropriate staffing of the case at the advancement stage.
  • The parties do not have a blank check in this context, however, and the amount of fees are subject to review again at the indemnification stage. The court also observed that the client should also serve as a level of review because until indemnification is decided, that person incurs the risk that the fees may need to be paid back.
  • Regarding the challenge to the rates charged by staff attorneys, the court found that there were factual issues that could not be resolved at summary judgment stage.
  • Regarding allegations that the hours worked on the case were excessive and that the Paul Weiss firm overstaffed the matter, the court determined that it would rely on a certification from a senior partner of Paul Weiss by sworn affidavit that the amount of fees and expenses were reasonable under the circumstances.
  • The court emphasized however that the firm does not have a blank check and that the person receiving the advancement has an incentive to monitor those bills in the event that it may be ultimately determined that the advancement was improvidently granted and may later need to be disgorged. Thus a more detailed review of fees alleged to be excessive is deferred until the indemnification stage, at which time levels of staffing and number of hours worked and rates can be reviewed.

Procedure for Determining Advancement Due on Future Invoices:

  • The court described at pages 32 through 37 of the slip opinion the detailed procedure that the court required to be followed going forward based on the very specific methods described in the Fitracks case which is a very comprehensive procedure designed to minimize the amount of disputes about monthly bills that the court will need to address going forward.

Regarding Fees on Fees:

  • The court determined that because only some of the claims were successful, only a partial amount of fees on fees would be awarded and that the parties should use the same Fitracks procedure to determine those amounts.

The most noteworthy point of this short letter ruling in which a former corporate officer is granted advancement pursuant to Section 145 of the Delaware General Corporation Law, in Kolokotrones v. Ninja Metrics, Inc., C.A. No. 12413-VCS (Del. Ch. Dec. 18, 2017), is that the court rejected an argument based on the fact that the underlying litigation for which advancement was sought had been concluded by the time that a formal order granting advancement was entered on the docket.  Although in theory, when the underlying claim that gave rise to any advancement right was dismissed or finally concluded, arguably that claim for advancement then became a claim for indemnification, assuming that the party seeking advancement prevailed, the court found that argument unpersuasive based on the procedural posture of this case.

The court explained that otherwise it would be placing form over substance and benefiting the defending party for its procedural “machinations.” In addition, the court did not want to reward the delay of the defending party to the detriment of the party seeking advancement.

Moreover, the original decision in this case was rendered as a bench ruling, and the letter ruling that denied a motion for reargument explained that the original decision had granted fees on fees. Thus, notwithstanding a prior final resolution of the underlying litigation that gave rise to the advancement claim, because fees on fees were granted for the advancement claim, simply because the underlying litigation concluded, does not, in the court’s words:  “under any view of the world, moot that claim.”

In a recent Delaware Chancery opinion, the court clarified that a corporate officer who was “successful on the merits or otherwise in the defense of an action” need not show good faith in order to be entitled to mandatory indemnification.  Meyers v. Quiz-Dia LLC, C.A. No. 9870-VCL (Del. Ch. June 6, 2017). See also DGCL Section 145(c). Several prior Delaware decisions in this case, which provide background details, have been highlighted on these pages.

Key Aspects of the Decision:  Many cases highlighted on this blog have addressed the various permutations of indemnification and advancement for officers and directors, so this decision will be limited to the nuances that make this ruling noteworthy (and “blog-worthy”).

The court explained that when mandatory indemnification is provided to the fullest extent permitted by applicable law, that includes the fees incurred to investigate claims  prior to a lawsuit.  In particular, in this matter, former officers had reason to believe that they would be sued, and thus began an investigation of those potential claims in order to prepare their defense.  Fees for that investigation are included in the indemnification rights to which they were entitled.

Although the indemnification provisions in this case were in the LLC context, because the language used in the LLC documents mirrored DGCL Section 145(c), the case law and statutory interpretation approach that construed that language was applicable.

The phrase in Section 145(c) that provides mandatory indemnification when a former director or officer has been “successful on the merits or otherwise in defense of any action . . ..”, has been interpreted very broadly to include almost anything short of a complete loss.  It permits an indemnitee to be indemnified as a matter of right even if the success includes, for example, dismissal without prejudice of a federal action – – and the same claims are later asserted again in a state court action.

Notably, the good faith requirement does not apply under Section 145(c) to a director or an officer who is “successful” in defending a claim.  See footnotes 39 and 40 and accompanying text.

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.

The Delaware Court of Chancery recently addressed an issue of importance to directors of companies as well as those interested in corporate litigation. In the case of Dore v. Sweports, Ltd., C.A. No. 10513-VCL (Del. Ch. Jan. 31, 2017), the court addressed situations where a director conceivably could be indemnified for fees incurred in pursuing an affirmative claim against the company as compared to the typical situation where indemnification is sought for reimbursement of fees incurred to defend a claim successfully. This opinion also provides an excellent overview of basic indemnification principles based on DGCL Section 145.

Background: The various lawsuits that gave rise to this indemnification action were based in large part on the attempts of the law firm of Sweports, Ltd. to collect legal fees.  One of the partners in the law firm was on the board of the company and also had to defend himself when the company filed counterclaims against the plaintiffs that were unsuccessful.  The lawyers who were seeking to collect their fees against the company ultimately commenced involuntary bankruptcy proceedings against the company.  The Delaware lawsuit was initiated after the lawyers for the company were largely successful in their lawsuits against the company to collect fees, and in defending claims against them made by the company.

Indemnification Principles

Section 145(a) of the Delaware General Corporation Law (DGCL) allows for indemnification in an action “other than by or in the right of the corporation.”  Section 145(b) provides for indemnification in an action “by or in the right of the corporation.”  Section 145(c) mandates that a Delaware corporation indemnify an individual who was sued by reason of the fact that the individual served as a director or officer if the individual was successful on the merits or otherwise in defending against the claim.  Although Section 145(c) only covers directors and officers, when a corporation has provided other authorized individuals with mandatory indemnification to the fullest extent of the law, then that right extends the mandatory indemnification contemplated by Section 145(c) to those individuals.

When assessing an indemnification claim, typically the first inquiry is whether the expense has been incurred in connection with a covered proceeding.  A covered proceeding is a civil, criminal, administrative or investigative action in which the individual seeking indemnification was a “party or threatened to be made a party by reason of the fact that the individual is or was a director, officer, employee or agent of the corporation.”  The corporation has the burden of proof when it has provided individuals with mandatory indemnification to the fullest extent of the law, to prove that an individual is not entitled to indemnification.

Typically, step two in the analysis after it is determined that a proceeding is covered, is to analyze whether the expenses incurred “were actually and reasonably incurred” in connection with the proceeding.  The court determined that only a small fraction of the expenses sought were actually incurred, and some of the expenses claimed were inflated.

The key aspect of this 58-page opinion of the Delaware Court of Chancery that makes it notable is that it addresses those situations in which an affirmative claim is indemnifiable, as compared with the more common claim for indemnification based on fees and expenses incurred to defend a claim brought against a director.

In this opinion, the Vice Chancellor explained that “it is conceivable that indemnification might be warranted for preemptive litigation involving personal claims that sought to negate a threatened breach of fiduciary duty claim . . ..”  The court explained that “. . . indemnification might be available if disposition of the personal claims would determine definitively whether the plaintiffs had breached their fiduciary duties.”  Typically, indemnification claims are not allowed for personal claims that are not brought “by reason of” the director’s duties, for example, in connection with an employment agreement that does not involve the exercise of judgment, discretion, or decision-making authority on behalf of the corporation.  The court referred to a prior Delaware decision in which indemnification was permitted for an intervenor where collateral estoppel might have barred a claim in a subsequent proceeding.

In this case, the plaintiffs chose to pursue their claims based on pure breach of contract theories untethered to their conduct as fiduciaries of Sweports.  Although they could have proceeded in a different manner, they only proceeded on a breach of contract theory.  The contract claims were personal to the plaintiffs in their capacity as lenders, creditors and guarantors – – which did not have a sufficient nexus implicating corporate duties.

The court did allow a portion of the fees and expenses incurred to defend against counterclaims which plaintiffs successfully defended, as well as related claims that were defensive in nature.  Finally, because the plaintiffs were only successful to a small degree in their claims seeking indemnification, the court only allowed a small percentage of the “fees on fees” that were incurred in connection with their effort in this case to collect fees.

Postscript: For the past several years, I have co-written a chapter of a book published by the ABA that compiles key court decisions from Delaware and around the country regarding both advancement and indemnification of corporate officers and directors, for example, pursuant to DGCL section 145.

The Delaware Supreme Court explains in this short opinion the public policy supporting the expedited nature of advancement proceedings for officers and directors of corporations, and managers of LLCs. Trascent Mgmt. Consulting, LLC v. Bouri, No. 126, 2016, 2016 WL 6947014 (Del. Nov. 28, 2016).

Although the principles discussed in this opinion are not new, the result of the case is a predictable rejection of a defense to payment by an entity of advancement of fees incurred by former officers, directors and managers. This is an essential topic in corporate litigation for executives of companies and the lawyers who represent them.  We include this decision on these pages, as it is the most recent Supreme Court pronouncement on an exceedingly important topic, and we cover on this blog the key decisions in the area. The most noteworthy aspect of this opinion is the court’s explanation of the public policy reasons in support of advancement and the need for prompt resolution of such claims in the Court of Chancery.dollar-941246_1280

In this case, a former manager of an LLC sought advancement for fees incurred in connection with defending a claim by his former employer. His employment agreement and the LLC agreement both contained nearly identical language providing for the right to advancement. The company attempted to defeat the advancement claim by alleging that the manager who was seeking advancement procured his position by fraud and that the agreements providing for advancement were based on fraudulent inducement. The court acknowledged the Delaware LLC Act’s analogue to DGCL section 145.

The court found that the company’s defenses were based on plenary claims. This opinion affirmed the Court of Chancery’s decision to prevent such plenary claims from impeding the prompt resolution of the advancement claim for several reasons. First, whether the allegations of fraud were ultimately successful was an issue to address in connection with indemnification in a separate and subsequent proceeding. Whether indemnification was appropriate was not a defense to advancement in the interim. Second, the court explained that a party cannot escape an otherwise valid contractual provision by arguing that the underlying contract was fraudulently induced or invalid for some reason unrelated to that provision. In addition, the court emphasized that advancement proceedings are summary in nature, and Delaware courts do not countenance attempts to delay the proceedings by addressing plenary claims.

A recent Chancery decision is notable partly because it falls within the minority of advancement cases that deny advancement of fees to a former employee who was given the title of vice president. Its application may be limited due to procedural quirks and its reliance on New Jersey law. In Aleynikov v. The Goldman Sachs Group, Inc., C.A. No. 10636-VCL, Order and Final Judgment (Del. Ch., July 13, 2016), the Court of Chancery’s post-trial decision features an unusual result in that a vice president was denied advancement, but the 17-page Order of the court was based primarily on the doctrine of “issue preclusion”, and in particular how that concept was construed under New Jersey case law. Thus, it may not be of widespread usefulness in other Delaware corporate litigation regarding advancement.

The Court of Chancery also explained why it disagreed with an analysis of the doctrine of contra proferentem as applied by the U.S. Court of Appeals for the Third Circuit, but nonetheless felt constrained by its decision based on the doctrine of issue preclusion. Notwithstanding its obligation to follow that prior ruling, for much of the 17-pages of the Order, the Court of Chancery explained why it disagreed with the Third Circuit and why it would have reached a different conclusion. This case is now on appeal before the Delaware Supreme Court.

This case should be compared to another recent decision which also shares the uncommon result of denying advancement to someone with the title of an officer. See Pulier v. Computer Sciences Corp., highlighted on these pages. That separate case was also impacted by the application of another state’s law.

Procedural History

The procedural history of this case is somewhat tortuous. Initially, the United States District Court for the District of New Jersey granted summary judgment in favor of Aleynikov on the advancement issue, but on appeal, the United States Court of Appeals for the Third Circuit reversed and vacated the trial court’s ruling. Aleynikov then filed the instant action in Delaware seeking an interpretation of his rights under Delaware law. On April 28, 2016, the Court of Chancery held a one-day trial.

Useful Aspects of Decision

Based on the finding that the court was bound by a prior ruling of another court, which in turn was based on New Jersey law, this Order has limited application, and that is one reason the court likely explained its 17-page decision in the form of an Order, as opposed to a formal opinion. Nonetheless, the Court’s discussion of the doctrine of contra proferentem, as well as the concept of in pari materia when interpreting the bylaws of a parent company and the different bylaws of its subsidiaries, could have useful application. Also useful is the truism observed by the court that corporations have the authority to extend the benefits of advancement not only to officers but also to all employees and agents of a company. See DGCL Section 145(e).

Compare Recent Similar Holding

This case should be compared to another recent Chancery decision in a separate matter that also reached the unusual conclusion of not awarding advancement; and that case was also based on non-Delaware law and the constrained interpretation of the word “officer” under Nevada law and Nevada bylaws. See Pulier v. Computer Sciences Corp., et al., C.A. No. 12005-CV (transcript) (Del. Ch. May 12, 2016), as highlighted on these pages here.


Narayanan v. Sutherland Global Holdings Inc., C.A. No. 11757-VCMR (Del. Ch. July 5, 2016). This Delaware Court of Chancery opinion addressed: (1) Whether separate sources of indemnification, including the company’s bylaws and an indemnification agreement, must be read together or separately; (2) Whether the plaintiff-director served the entity at the request of the company or for his own personal benefit; and (3) Whether the court should delay granting the request for fees, and fees-on-fees, until after the court determines that the company is liable for those fees. Each of the issues was decided in favor of the plaintiff-director.

Brief Overview:

Although Delaware entities were involved, many of the activities giving rise to this case occurred in India. One of the developments that precipitated the litigation by the plaintiff-director, is that upon his retirement, the company did not honor its alleged obligation to buy his shares. The plaintiff-director took legal action to obtain payment for his shares. The initial action was filed in federal court in New York and the Company filed counterclaims. The Company also filed a criminal complaint against the plaintiff-director in India alleging breach of duties.

Basis for Advancement:

The three instruments on which the claims for advancement are based are: (1) The certificate of incorporation; (2) bylaws, and (3) indemnification agreement. After making a demand and attaching an undertaking, the complaint in this matter was filed on November 30, 2015. It is noteworthy that the trial was held within 70-days after the complaint was filed, and this 44-page opinion was issued promptly thereafter.


(1) The court held that the bylaws are a separate and independent source of indemnification and advancement that do not require cooperation even though other documents might have that as a condition; (2) The controller of the company requested that the plaintiff-director serve in both entities involved in this matter and that satisfied any prerequisites for advancement; and (3) There is no further reason to delay vindicating the right to advancement notwithstanding other issues that have yet to be adjudicated.

Legal Analysis:

DGCL Section 145 governs the advancement issues in this case. The court observed the truism that a corporation has discretionary authority to provide indemnification under subsections (a) and (b), as well as advancement under subsection (e), but must provide indemnification in certain circumstances pursuant to subsection (c).

Section 145(f) makes clear that the indemnification and advancement rights under the DGCL are not exclusive of any additional indemnification and advancement rights a corporation chooses to provide in a separate instrument. The court cited to other recent decisions in which the court recognized that there could be several separate and independent sources of advancement. See Marino v. Patriot Rail Company, 131 A.3d 325, 332 (Del. Ch. 2016), highlighted on these pages here, as well as Charney v. American Apparel, Inc., 2015 WL 5313769 (Del. Ch. Sept. 11, 2015), highlighted on these pages here. Charney stands for the proposition that unavailability of advancement under one source of rights does not foreclose the possibility of advancement under another.

Exception to Rule that Multiple Contracts Construed Together

The court addressed the principle that when multiple contracts are signed together as part of a single transaction, those contracts are often interpreted together, apart from any explicit incorporation by reference. Namely:

“The principle that all writings which are part of the same transaction are interpreted together also finds application in the situation where incorporation by reference of another document may be inferred from the context in which the documents in question were executed,” in the absence of any contrary intention. See Slip Op. at 29 and n.77 (citing 11 Williston on Contracts § 30:26 (4th ed. 1999)).

Notwithstanding the foregoing principle, the court emphasized the exception to the rule which is “in the absence of evidence to the contrary,” which applies in this case. Compare a very recent advancement decision in Aleynikov v. The Goldman Sachs Group, Inc., highlighted on these pages, in which the Court of Chancery discussed the doctrine of in pari materia, in connection with reading the separate bylaws of a parent company and its subsidiary in a consistent manner.

After reciting the basic principles of contract interpretation, the court held that under the circumstances present, the bylaws and the separate indemnification agreement were independent sources of advancement rights. The court found that based on the testimony and evidence at trial, that the plaintiff-director served at the request of the person who was the controlling stockholder, chairman and CEO – – which the court viewed as tantamount to a request by the corporation. That controlling stockholder, chairman and CEO had apparent and actual authority to direct employees and to bind the company. Therefore, that fact satisfied the requirement in the bylaws that the company request plaintiff-director to serve in his capacity.

A Determination on Exact Amount of Fees:

The court expressed the view oftentimes repeated in recent advancement decisions that a proceeding to determine the right to advancement is not the appropriate time to dispute the precise amount of fees, and that in an advancement proceeding, the court will not inject itself as a “monthly monitor of the precision and integrity of advancement requests.” See footnote 93.

In addition, the court was satisfied that plaintiff-director’s counsel segregated as best as possible the unrecoverable fees from his affirmative claims in New York as compared to the defense of the counterclaims which were subject to advancement.

Procedure for Payments Going Forward:

The court imposed an order requiring that the parties follow the framework and procedures for monthly requests for fees, and any disputes of same, detailed by the court in the case of Danenberg v. Fitracks, Inc., 58 A.3d 991, 1003-04 (Del. Ch. 2012).

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.

The recent Delaware Court of Chancery opinion in Hyatt v. Al Jazeera American Holdings II, LLC, C.A. No. 11465-VCG (Del. Ch. March 31, 2016), is useful for those who need to be aware of the latest iteration of Delaware law on advancement of fees incurred by former officers and directors, which is one of the more common forms of corporate litigation. This is the latest in an ongoing series of rulings in Delaware involving a transaction in which the media company known as Al Jazeera, based in the Middle East, purchased a cable TV company in the U.S. which was owned at least in part by the former politician, Al Gore, as well as Joel Hyatt. Some of those decisions have been highlighted on these pages.

Introduction: The court begins the opinion with the apt description of many advancement cases being indicative of “Hirer’s Remorse”, to the extent that advancement is given to employees, officers and directors as an inducement for them to accept their positions for the benefit of a corporation, but afterwards when those corporations need to make payments pursuant to those advancement obligations, they often resist and try to find reasons not to pay.

Background. This case involves a twist on that typical pattern. Al Jazeera assumed the obligations of advancement from the company that it purchased. The underlying litigation began when Hyatt and Gore sued Al Jazeera to collect money that was placed in escrow after the transaction. Al Jazeera then counterclaimed against Hyatt and Gore contending that they breached provisions of the merger agreement based on certain alleged misrepresentations and related claims. It was undisputed that the initial claims in the suit filed by Hyatt and Gore were not covered by advancement. This case involved whether the counterclaims against Hyatt and Gore entitled them to advancement of their fees and expenses.

Key Facts: In large measure the case turned on whether the counterclaims against Hyatt and Gore were made against them in their capacities as former officers and directors. The court analyzes each of the counterclaims separately and found that most of them did assert allegations based on the actions of Gore and Hyatt as former officers and directors of the company. The analysis was based on the terms of the merger agreement which incorporated the advancement provisions in the LLC operating agreement.

Notably, the court found that fee shifting provision in the relevant agreement did not supersede the advancement obligation and that the shifting of fees provision was silent on the issue of advancement.

Useful Nuggets include the following:

Although indemnification and advancement rights are closely related, each are ‘distinct types of legal rights,’ and the ‘right to advancement is not ordinarily dependent upon a determination that the party in question will ultimately be entitled to be indemnified.’” See footnotes 31 and 32. The foregoing statement perhaps encapsulates the counterintuitive nature of the concept of advancement and is the aspect that most commonly frustrates many corporations who find it difficult to advance fees and expenses when they are at least personally convinced that ultimately the former officer and director will not be entitled to indemnification.

Another nugget of legal insight in this case refers to the application of cases interpreting Section 145 of the Delaware General Corporation Law to advancement provisions in LLC operating agreements. Footnote 38 in the opinion and the accompanying text explain how the court often applies the reasoning in cases interpreting Section 145 to the interpretation of language in an LLC operating agreement or other agreements that often incorporate the same statutory advancement language verbatim from Section 145. In this case for example, the operating agreement conferred advancement on former officers and directors that incurred expenses “by reason of the fact” that the person was a former officer and a director. That language tracks the language in Section 145 of the DGCL. The court cites to other cases that have relied on Section 145 jurisprudence to interpret provisions in agreements that use the same or similar language as the statute.

The court referred to Section 18-108 of the Delaware LLC Act as giving broad authority to LLCs to provide indemnification by contract. Specifically, the court in this case found that the parties intended to import the “strictures” of Section 145 by using the same language in their agreement. The court also allowed for “fees on fees” which is a well-established principle to cover the costs of litigation to the extent that a party prevails in establishing the right to advancement, as in this case.