Case Title: Miller v. Palladium Industries, Inc.

Citation: 

Docket Number: 36, 2013

State: delaware

Court: Delaware Supreme Court

Date: 2013-07-19T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
DAVID F. MILLER, III,  
§ 
 
 
§ No.  36, 2013 
 
Defendant Below, 
§ 
 
Appellant, 
§ Court Below:  Court of Chancery 
 
 
§ of the State of Delaware  
 
v. 
 
§ 
 
 
§  C. A. No.  7475 
PALLADIUM INDUSTRIES, INC., 
§ 
 
 
§ 
 
Plaintiff Below, 
§ 
 
Appellee. 
§ 
 
 
Submitted: July 17, 2013 
 
Decided: 
July 19, 2013 
 
Before BERGER, JACOBS and RIDGELY, Justices. 
 
O R D E R 
 
 
This 19th day of July 2013, upon consideration of the briefs of the parties, 
and their contentions in oral argument, it appears to the Court that the judgment of 
the Court of Chancery should be affirmed on the basis of its decision dated 
December 31, 2012,1 for the following reasons: 
1. 
At issue is the proper meaning of a corporate Bylaw that authorizes 
advancement of litigation expenses.  Bylaw Section 5 relevantly provides: 
Expenses incurred by any persons described in Section 2 
of this Article X [i.e., Directors and Officers] in 
defending a proceeding shall be paid by the corporation 
in advance of such proceeding’s final disposition unless 
                                          
 
1 Miller v. Palladium Industries, Inc., 2012 WL 6740254 (Del. Ch. Dec. 31, 2012). 
2 
 
otherwise determined by the Board of Directors in the 
specific case ….”  (italics added). 
2. 
Relying on the authority conferred by that Bylaw language, the Board 
of Directors determined that, for various reasons, it was not in the corporation’s 
best interests to provide advancement to the plaintiff.  The Court of Chancery 
upheld this determination, concluding that “[t]here is no way to give separate and 
independent meaning to the ‘unless’ clause [of the advancement Bylaw] except as 
[the corporation] has interpreted it.” 
3. 
On appeal the plaintiff claims that the Court of Chancery erred as a 
matter of law, by interpreting the “unless” clause to downgrade an otherwise 
mandatory right to advancement, to one that is merely permissive and 
discretionary.  Had the Bylaw drafters intended to make advancement permissive, 
(i.e., subject to Board approval), plaintiff argues, they could have used the different 
language the Bylaws actually employ for non-officer employees and agents.2  
Since Section 5 uses “shall” and not “may,” plaintiff urges the term “shall” must be 
understood and read to signify that the Bylaw intended to create a mandatory 
contractual right to advancement for officers and directors. 
4. 
The plaintiff’s interpretation erroneously assumes that the only possible 
interpretations of Section 5 are binary—that the officers’ and directors’ right to 
                                          
 
2 The corporation may, by action of the Board of Directors, provide [advancement] to employees 
and agents of the corporation….”  (italics added). 
3 
 
indemnification is either totally mandatory or totally permissive, with no 
intermediate alternative.  That assumption ignores the language of Section 2 of the 
Bylaws, which must be read together with Section 5.  Section 2 relevantly provides 
that the entitlement to advancement of directors and officers, although initially 
discretionary, automatically becomes mandatory if the Board does not “otherwise 
determin[e] . . . in the specific case within 30 days of a written request for 
advancement.”  That is, unless the Board affirmatively decides to deny 
advancement within 30 days, an officer’s or director’s claim for advancement 
ripens into an enforceable contract right.  That reading gives meaningful effect to 
both the terms “shall” and “unless,” contrary to the plaintiff’s argument.  It also 
establishes a rational basis for the differing treatment of these two separate 
categories of potential claimants—a business judgment that the Board was 
empowered to make. 
 
NOW, THEREFORE, IT IS ORDERED that the judgment of the Court of 
Chancery is AFFIRMED. 
 
 
 
BY THE COURT: 
 
 
 
 
/s/ Jack B. Jacobs 
 
 
 
       Justice