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Timestamp: 2019-04-22 20:27:11+00:00

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Particularly in today's business climate, officers and directors of corporations confront an omnipresent risk of being sued for breach of duty by reasons of perceived deficiencies in corporate productivity. As noted by the Seventh Circuit, "Litigation is an occupational hazard for corporate directors, albeit one that may often be shifted to the corporation through indemnification." Such protection may be afforded by statute, charter, bylaw or contract.
Section 145 of Delaware's General Corporation Law (DGCL) is representative of indemnification statutes. Sections 145(a) and (b) authorize permissive indemnification by the corporation on a case-by-case basis provided that the officer or director acted (1) in good faith and (2) in a manner reasonably believed to be in the best interests of the corporation. Section 145(c) mandates indemnification when an officer or director has been "successful on the merits or otherwise in defense" of any action. These provisions are not self-limiting, however. Pursuant to § 145(f), a corporation may provide greater protection than that granted by the DGCL. On this basis, many large corporations have sought to ameliorate the "occupational hazard" of litigation against directors and officers by adopting indemnification provisions that are not only broad but also mandatory. As one court has observed, the purpose behind this sweeping grant, "is to encourage capable men to serve as corporate directors, secure in the knowledge that expenses incurred by them in upholding their honesty and integrity as directors will be borne by the corporation they serve."
Section 145(e) of the DGCL authorizes Delaware corporations to advance, i.e., pay officers and directors their litigation expenses, including attorneys fees. The ability to secure advancements is recognized as a valuable benefit to directors or officers who become the target of vexing class and derivative lawsuits. Under §145(e), the ultimate decision whether to advance expenses rests with the business judgment of the board of directors. In exercising their business judgment, directors should undertake a two-prong inquiry: first, they must decide whether the undertaking proffered in all of the circumstances is sufficient to protect the corporation's interest in repayment; and secondly, they must conclude that advancement of expenses would, on balance, be likely to promote the corporation's interests. Thus, as the Court of Chancery has observed, "the advancement decision is essentially simply a decision to advance credit." Just as with indemnification, however, § 145(f) vests Delaware corporations with the power to adopt advancement provisions that are mandatory such that the corporation has no discretion in advancing fees. Mandatory advancement must be explicit and cannot be read into a bylaw that only mandates indemnification. Typically, mandatory advancement provisions are conditioned only on the submission of an undertaking to the corporation by the officer or director to repay the funds advanced in the event it is ultimately determined that he or she is not entitled to be indemnified.
While mandatory indemnification and advancement bylaws have become commonplace, corporations should be wary of enacting by-laws or entering into indemnification agreements that tip the balance too far in the indemnitees' favor. Recent developments have facilitated unforeseen and aggressive uses of indemnification and advancement by directors and officers. For example, courts have permitted indemnification developments where the director or officer acted either as a plaintiff or counterclaim plaintiff. The notion of what types of allegations are brought "by reason of the fact" that an individual is a director have been expanded. Courts have broadly interpreted the "successful on the merits" test articulated under § 145(c) of the DGCL. Legislative developments have authorized use of a summary proceeding mechanism to resolve advancement disputes. Creative maneuvers have been employed to avert the prohibition on indemnification of expenses incurred in indemnification enforcement actions.
A peculiar paradox may occur when the corporation itself initiates suit against the officer or director (or vice versa) and the corporation finds itself funding its opponent's litigation. Here the wisdom of mandatory advance indemnification is called into question; witness the Delaware Supreme Court's decision in Citadel Holding Corp. v. Roven and the California Superior Court's decision in Megeath v. PLM International, Inc. In Citadel, Citadel Holding Corporation (Citadel) brought suit against Roven, a director of Citadel, in the U.S. District Court for the Central District of California for alleged violations of § 16(b) of the Securities and Exchange Act of 1934. In defending the federal action, Roven asserted certain counterclaims and affirmative defenses against the corporation. Although these claims and defenses ultimately were dismissed by the federal court, Roven sought indemnification for expenses incurred in pursuing them, as well as for his defense costs. Roven was relying on an indemnification agreement he had with Citadel which mandated indemnification, subject to certain exceptions, for "any expense or liability incurred" by him by reason of his service as a director, and which mandated advancement of costs and expenses, including attorneys' fees, incurred "in defending or investigating any action, suit, proceeding or investigation." The lower court awarded Roven nearly $1 million in attorneys' fees and related expenses incurred in defending the federal action.
On appeal to the Delaware Supreme Court, Citadel argued first that the indemnity agreement expressly excluded indemnification for claims brought under § 16(b), thereby excluding advancements for claims brought under § 16(b). The Delaware Supreme Court disagreed, reasoning that even though it might ultimately be determined that there was no right to indemnification, the language of the advancement provision did not make the right to advances dependent upon the right to indemnification. The right to indemnification is separate and distinct from the right to advancement. As the Supreme Court observed, the advancement provision applied to "any action." Thus, the court held that Roven was entitled to advances, notwithstanding the indemnity agreement's prohibition of indemnification for § 16(b) claims. The Court did, however, impose a reasonableness requirement on expenses incurred, stating that the advances made to Roven would have to be both reasonable in amount and incurred in a proceeding related to the business of Citadel.
Having found that the advancement provision applied to the federal action, the Supreme Court turned to the issue of whether Roven was entitled to expenses incurred in pursuit of his counterclaims and affirmative defenses. The Supreme Court rejected Citadel's argument that such expenses were not allowed because the advancement provision expressly limited expenses to those incurred "in defending" an action, concluding instead that the provision's phrase "in defense" should be given a broad meaning. So interpreted, the phrase was held to encompass expenses incurred in asserting both affirmative defenses and counterclaims. Counterclaims were included because counterclaims arising from the same transaction as the original complaint would be barred if not contemporaneously asserted under the compulsory counterclaim rule.
The advancement of litigation expenses to a former director in litigation against the corporation also was ordered the unreported California case of Megeath v. PLM International, Inc. The Megeath case addressed an issue left unresolved by Citadel; namely, whether an officer or director who initiates suit against the corporation is entitled to the advancement of litigation expenses. Instead of "defending" an action brought by the indemnifying corporation, the former officer and director in Megeath had actually brought the action against his corporation and sought the advancement of his expenses and attorneys' fees to fund that litigation.
Samuel A. Megeath III (Megeath), a former director and chairman of PLM International Inc. (PLM), brought suit against PLM based on his allegedly wrongful discharge as a director and chairman. Megeath had entered into an indemnification agreement with PLM whereby the corporation had agreed to indemnify him for "expenses, including counsel fees, as incurred, whatsoever, arising out of or in connection with Megeath agreeing to serve and serving as a director of PLM to the full extent permitted by any and all applicable law." In addition, PLM had a bylaw, which, like the indemnity agreement in Citadel, required PLM to advance officers and directors "[e]xpenses incurred in defending or investigating a threatened or pending action, suit or proceeding."
The California court in Megeath rejected PLM's assertion that the indemnity agreement was never intended to cover expenses incurred to prosecute suit against the corporation, but rather was limited to the defense of lawsuits. The court refused to consider extrinsic evidence as to the meaning of the indemnity agreement, concluding that such evidence conflicted with the express provisions mandating indemnification. The court further relied upon the Delaware Supreme Court's 1983 decision in Hibbert v. Hollywood Park, Inc., which permitted indemnification — albeit on a post hoc basis — for expenses incurred by officers and directors in suing the corporation. Accordingly, the Megeath court granted Megeath's request for the advancement of litigation expenses, thereby requiring the corporation to pay both its own fees and those of the party suing it.
As noted in Megeath, the Delaware Supreme Court's earlier decision in Hibbert v. Hollywood Park makes clear that a corporation which has adopted a bylaw that mandates the otherwise permissive provisions of § 145(a) is obligated to indemnify its officers and directors for expenses incurred in both defending and bringing an action, if the applicable standard of conduct has been met. Hibbert held that certain former directors of Hollywood Park, Inc. were entitled to final reimbursement (as opposed to the advancement) of legal fees and costs incurred in suits filed by them in pursuit of an unsuccessful bid for reelection to the Hollywood Park Board of Directors. The bylaw in Hollywood Park provided indemnity to directors involved in a proceeding "as a party or otherwise." The Delaware Supreme Court, noting that this language was consistent with § 145(a) and (b), concluded that "indemnity is not limited to only those who stand as a defendant in the main action."
Since Citadel Holdings and Megeath were decided, the Delaware Court of Chancery has had occasion to consider the appropriate scope of an indemnitee's request for advancement/indemnification. In Shearin v. E.F. Hutton Group, Inc., the Court of Chancery held that indemnification is only available when the expenses have been incurred in a "covered proceeding." A proceeding is "covered" when a plaintiff director initiates suit as part of his or her directoral duties. In Shearin, K. Kay Shearin (Shearin), former legal counsel and vice president of a limited trust company, brought an action against the trust company, its affiliate and others for defamation, breach of employment contract, and interference with contractual relationships following her dismissal and to assert the rights of shareholders following a merger by seeking an increase in merger consideration. Shearin sought leave to amend her complaint to include, inter alia, a claim for indemnification.
A review of the history of the statutory language of Section 145 confirms that the drafters of the statute originally had in mind indemnification of expenses for those who were required to defend actions taken on behalf of the corporation. Amendment of subsections (a) and (b) enacted as part of the 1967 comprehensive amendment of the Delaware General Corporation Law, however, have been held to broaden the reach of those subsections.
Yet, even with this "broadened reach," the Chancellor reasoned, the right to indemnification must be tied to directoral duties: "I take Hibbert to recognize that permissible indemnification claims will include those deriving from lawsuits brought by directors, officers, agents, etc., only insofar as the suit was brought as part of the employee's duties to the corporation and its shareholders." In other words, in order to qualify for indemnification, the plaintiff must seek to achieve, "through litigation, a corporate benefit that it was plaintiff's duty to seek to achieve." In Shearin, the Court found that the plaintiff sought to advance her own interests and that the litigation involved the assertion of her personal rights (i.e., defamation and breach of contract), and therefore did not advance the interests of the trust corporation. Accordingly, Shearin's proposed amendment seeking indemnification did not state a claim for which relief could be granted and was denied.
Hibbert, Citadel, and Megeath are demonstrative of the care which corporate counsel must exercise in drafting indemnity agreements — or, more commonly, bylaws — mandating indemnification and advancement of litigation expenses. While converting the permissive protections under subsections (a), (b), and (e) of §145 to mandatory protections through bylaws or a separate contract is permissible and, indeed, quite common, such mandatory advancement and indemnification provisions may open the corporate treasury to officers and directors to pursue unforeseen claims against the corporation. The key to preventing such unintended results is precision in drafting.
As Citadel illustrates, courts will examine the language of bylaws to ascertain the clarity of the drafter's intent, and, only if ambiguous language is encountered, look to collateral sources to ascertain that intent. To avoid an inappropriate or unintended use of advancement expenses, especially for "offensive" litigation, corporations may wish to include a careful definition of the circumstances under which an officer or director may obtain litigation advances. As the Roven decision illustrates, reliance on the language of § 145(e) authorizing the advancement of expenses incurred "in defending" any action will not be sufficient to preclude advancement for expenses incurred in pursuing affirmative defenses and compulsory counterclaims.
"BY REASON OF THE FACT"
Corporations should also take note of recent court decisions taking a broad view of whether directors have been sued "by reason of the fact" that they are directors. In Hefferman v. Pacific Dunlop GNB Corp., for example, the United States Court of Appeals for the Seventh Circuit held that the district court had prematurely dismissed a director's claim for indemnification, stating "We believe that Delaware's `by reason of the fact that' phrase is broad enough to encompass suits against a director in his official capacity as well as suits against a director that arise more tangentially from his role, position or status as a director."
In Hefferman, an acquiror sued the target company and a former director under § 12(2) of The Securities Act of 1933 and under Illinois securities law, alleging the use of misleading offering materials, and sought to rescind the purchase of the former director's stock. The director requested and was denied indemnification and advancement, despite provisions in the company's bylaws for both mandatory indemnification and mandatory advancement. This enforcement action followed.
artful drafting cannot disguise the fact that the gravamen of [the acquiror plaintiff's] complaint is that [the director], at least in part because he was a director . . . either knew or should have known that [the target parent corporation and its subsidiary] may be subject to environmental and other liabilities inadequately reflected in the Stock Purchase Agreement. We recognize that because [the director] wore three hats — director, shareholder and investment banker — his director status may not be the only reason that he was sued by [plaintiff acquiror]. But at this stage of this litigation, we cannot, as a matter of law, rule out the fact that it may have been one reason.
Other courts have reached similar conclusions. Furthermore, the Seventh Circuit found no support in the language and purpose of Delaware's indemnification statute for the defendants' argument that the statute limits indemnification to suits asserted against a director for breaching a duty of his directorship or for acting wrongfully on behalf of the corporation he serves.
Mindful of Heffernan, corporations may wish to define explicitly what situations will satisfy the "by reason of the fact" requirement.
Unlike subsections (a) and (b) of § 145 which provide for permissive indemnification, subsection (c) of § 145 provides for mandatory indemnification. It is triggered when the director or officer shows that (1) the proceeding in which he or she seeks indemnification is covered by either subsection (a) or (b) of § 145, and (2) he or she was "successful on the merits or otherwise in the defense of the action." Several recent court decisions have taken a rather expansive view of what it means to be "successful on the merits or otherwise."
In Mayer v. Executive Telecard, Ltd., United States the District Court for the Southern District of New York found that an officer was entitled to indemnification under § 145(c) because he "escaped adverse judgment and detriment." In Mayer, dissident shareholders who were seeking to enjoin the company from soliciting proxies in violation of the Securities and Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission sued the company in district court. The company added its treasurer as a plaintiff and counterclaim defendant, seeking relief against the treasurer based on his alleged use of confidential information to gain control of the company in violation of federal and state law.
The company eventually settled with the shareholders, and the case was dismissed with prejudice. Following the company's refusal to honor the treasurer's request for indemnification, this enforcement action ensued. The District Court held that the treasurer was "successful" and therefore entitled to indemnification pursuant to § 145(c) because: (1) the company made him a party to the underlying suit; (2) the order of dismissal of the suit following settlement clearly applied to all claims in the underlying action; and (3) the company's post-dismissal squabbles about the validity of the settlement agreements were inapposite. Thus, the treasurer "escaped adverse judgment and detriment," and indemnification was appropriate.
In reaching its decision, the District Court in Mayer relied heavily on the Second Circuit's analysis in Waltuch v. Conticommodity Services, Inc. In Waltuch, a vice president and silver trader was accused of manipulating the silver market in numerous civil lawsuits (where he spent $1.2 million in defense fees) and in an enforcement proceeding brought by the Commodity Futures Trading Commission (CFTC) (where he spent $1.0 million in defense fees). The company settled the private actions and paid $35 million. The trader paid nothing and was dismissed from all suits. In the CFTC action, the trader settled, agreeing to a $100,000 fine and a six-month ban on buying and selling futures. The trader sought mandatory indemnification under § 145(c), arguing that he was "successful on the merits or otherwise" in the private lawsuits, because they were dismissed with prejudice without any payment or assumption of liability on his part. The company denied indemnification claiming that the trader was not "successful" because the settlement payments of $35 million were caused by and made on behalf of the trader.
Vindication is also ordinarily associated with a dismissal with prejudice without any payment. However, a director or officer is not vindicated when the reason he did not have to make a settlement payment is because someone else assumed that liability. Being bailed out is not the same thing as being vindicated.
Under Merritt's holding, then, vindication, when used as a synonym for "success" under § 145(c), does not mean moral exoneration. Escape from an adverse judgment or other detriment, for whatever reason, is determinative. According to Merritt, the only question a court may ask is what the result was, not why it was.
Here, the silver trader was sued, and then the suit was dismissed without his having contributed any funds in the settlement. Under these circumstances, the Seventh Circuit held, he qualified for mandatory indemnification pursuant to § 145(c): "Whatever the impetus for the plaintiffs' dismissal of their claims against [the silver trader], he still walked away without liability and without making a payment. This constitutes a success that is untarnished by the process that achieved it."
Here again, Mayer and Waltuch provide important lessons for corporations and their counsel. Mayer demonstrates that a company that adds a director or officer as a party to a suit and then settles has potentially opened itself up to funding that party's litigation expenses. Waltuch underscores the importance of structuring settlements with indemnification triggers in mind.
The ability to secure a prompt declaration of indemnification rights was enhanced in 1995 when Delaware added a new subsection (k) to § 145 providing for the "summary" treatment of actions to enforce advancement. This provision was intended to address the dilemma often faced by directors or officers who found themselves incurring expenses — sometimes for years — before their right to advancement was adjudicated. In Citadel Holding Corp. v. Roven, for example, the advancement decision took over two years. Thus, new subsection (k) will help to advance the policy goals of advancement: "By its very nature, a proceeding of this kind must be summary in character, because if advance indemnification is to have any utility or meaning, a claimant's entitlement to it must be decided relatively promptly." The availability of a summary proceeding to secure a judicial declaration of entitlement to advances should be encouraging to directors and officers.
Under Delaware law, an officer or director is not entitled to be reimbursed for expenses incurred in an action to enforce his or her right to indemnification. Pursuant to § 145(f), however, corporations may agree to pay fees and costs incurred in prosecuting an indemnitee's action to enforce his or her advancement or indemnification rights. This right to "fees for fees" must be expressly provided for in corporate bylaws or separate agreements. As the Court of Chancery observed in Mayer v. Executive Telecard, Ltd., Delaware's indemnification statute provides for indemnification in connection with the defense of any action, suit or proceeding referred to in subsections (a) and (b) of § 145: "`[I]n connection therewith', however, refers to the expenses incurred in the original underlying action in which the claimant prevailed on the merits." Thus, while there may be sound policy reasons to award the costs of securing the right to advances, for the time being, the Court of Chancery has left that determination to the General Assembly.
The case law and statutory developments discussed above underscore the importance of a thoughtful approach to drafting indemnification and advancement bylaws and contracts. The practitioner should do so with an eye toward achieving the goal of affording directors and officers maximum protection, in appropriate situations, while remaining mindful of the potential for using the right in a manner which is inimical to the interests of the corporation.
For example, making advancement mandatory pursuant to a bylaw or contract a corporation essentially waives the directors' business judgment regarding that decision. In order both to eliminate the offensive use of advance indemnification and to preserve the board's discretion with respect to requests for advances, Delaware corporations may simply prefer to adopt the discretionary language of § 145 (a), (b), and (e) with respect to indemnification and advancement. In this manner, the board of directors is free to consider the type of claim for which the potential indemnitee seeks advances as well as the creditworthiness of the indemnitee, and other relevant circumstances, on a case-by-case basis. As the Advanced Mining Systems case illustrates, the board is free in this event to reject the request for an advance if it believes it is in the corporation's best interest to do so.
Where the bylaws or a separate contract provide for mandatory advancement, advances are available upon the furnishing of an undertaking. Typically, such an undertaking need not be secured, and the director need not demonstrate sufficient financial resources to satisfy the undertaking. Such conditions, however, can be imposed by bylaw or contract.
The corporation may choose to limit mandatory advancement and indemnification to those actions where the officer or director stands as a "defendant" rather than simply as a "party." This limitation should permit the corporation's board of directors to review all "offensive" actions on a case-by-case basis to determine whether indemnification and/or advancement is appropriate. The draftsman should be mindful, however, that in light of the authorities discussed above, such a provision could be construed as mandating advancement and indemnification of expenses incurred by the director in prosecuting affirmative defenses and compulsory counterclaims.
Draftsman may also want to anticipate and eliminate any uncertainty caused by a case's procedural posture such as whether an officer or director who brings a declaratory judgment action in the face of litigation threats by the corporation qualifies for indemnification and advancement.
If a corporation enacts mandatory indemnification and advancement provisions, it should consider defining and limiting what it means to be sued "by reason of the fact" that one is a director.
If a corporation is sued as a co-defendant with a director or officer, special care must be taken in drafting and executing a settlement agreement. Specifically, if the corporation wants to avoid reimbursing that person's litigation expenses, the director or officer should be required to make a portion of the settlement payment.
Indemnification is not available for expenses incurred in enforcement actions. Such indemnification may be expressly provided for however, in a bylaw or contract.
Heeding these drafting and settlement issues should lead to level playing field when it comes to issues of indemnification and advancement and allow corporations to assess reimbursement of expenses on a case-by-case basis according to what is in the best interests of the corporation.
* Michael B. Tumas and Peter J. Walsh, Jr., are partners and Eileen M. Filliben is an associate of Potter Anderson & Corroon, in Wilmington, Delaware. The authors would like to express appreciation for the assistance of Donald J. Wolfe, Jr., of Potter Anderson & Corroon in preparing this article.
Hefferman v. Pacific Dunlop GNB Corp., 965 F.2d 369, 370 (7th Cir. 1992).
8 Del. C. § 145.
Waltuch v. Contcommodity Serv., Inc., 88 F.3d 87, 94 (2d Cir. 1996) (citing E. Norman Veasey, et al., Delaware Supports Directors With a Three-Legged Stool of Limited Liability, Indemnification, and Insurance, 42 Bus. Law 399, 415 (1987)).
Mooney v. Willsy-Overland Motors, Inc., 204 F.2d 888, 898 (3d Cir. 1953).
Under amendments to subsection (e) effective July 1, 1997, "indemnification of an advancement of expenses to such employees and agent [sic], as well as former directors and officers, may be made by any person or persons having corporate authority to act on the matter, including those persons who are authorized by statute to determine whether to indemnify directors and officers." Ch. 120, L. '97 Synopsis of Section 145 (as reported in September 1997 Edition of Delaware Laws Annotated).
Havens v. Attar, Del. Ch., C.A. No. 15134, 1997 WL 55957, at *12 - *13, Chandler, V.C. (Jan. 30, 1997); Advanced Mining Sys., Inc. v. Fricke, Del. Ch., 623 A.2d 82, 84 (1992).
Havens v. Attar, Del. Ch., C.A. No. 15134, 1997 WL 695579, Chandler, C., Mem. Op. at 3 (Nov. 5, 1997); Advanced Mining, 623 A.2d at 84.
Advanced Mining, 623 A.2d at 84.
Del. Supr., 603 A.2d 818 (1992).
C.A. No. 930369, McCabe, J. (Cal. Super. Mar. 18, 1992).
Id. at 822. See also Ridder v. Cityfed Financial Corp., 47 F.3d 85, 87 (1995) ("Under Delaware law, appellants' rights to receive the costs of defense in advance does not depend on the merits of the claims asserted against them, and is separate and distinct from any right of indemnification they may later be able to establish."); Advanced Mining Sys., Inc. v. Fricke, Del. Ch., 623 A.2d 82, 84 (1992) ("Whether it is in a corporation's interest to indemnify a director or officer for an expense, loss or liability covered by Section 145(a) or (b) is fundamentally different from the question whether it is in the corporation's interest to advance arguably indemnifiable litigation expenses before the proceeding in which expenses are incurred has terminated.").
Case No. 930369, McCabe, J. (Cal. Super. Mar. 18, 1992).
Id., slip op. at 7.
Del. Supr., 457 A.2d 339, 344 (1983).
Hibbert, 457 A.2d at 344.
Del. Ch., 652 A.2d 578 (1994).
965 F.2d 369 (7th Cir. 1992).
See, e.g., Witco Corp. v. Beekus, C.A. No. 92-301-RRM; 1993 WL 749596, at *3, McKelvie, D.J. (D. Del. Oct. 22, 1993) (§ 145 of the DGCL required indemnification of director who was alleged to be personally liable for CERCLA claim "where there [was] a close nexus between the litigation and the defendant's corporate status"); Barry v. Barry, 824 F. Supp. 178, 185 (D. Minn. 1993) (mere fact that defendants "wore two hats" in their dealings with plaintiff — one as majority shareholder and one as company officer — "does not compel the conclusion that they were not sued at least in part, because of their official status"); Grove v. Daniel Valve Co., 874 S.W.2d 150 (App. Ct. Tx. 1994) (reversing grant of summary judgment which denied indemnification and remanding with instructions to look beyond the complaint to assess the relationships among the parties and to investigate in what capacity the individual at issue served while designing the allegedly defective valves); Kapoor v. Fujisawa Pharmaceutical Co., Ltd., Super. Ct., C.A. No. 93C-06-50, 1994 WL 233947, at *7, Del Pesco, J. (May 10, 1994) (referring to Seventh Circuit's opinion in Hefferman and finding that director was sued by reason of his position as director, not his position as stockholder, because the allegations of securities fraud necessarily involved what the director knew as a director), aff'd, Del. Supr., 655 A.2d 307 (Table), 1995 WL 24906 (1995); Salaman v. Nat'l Media Corp., Del. Super., C.A. No. 92C-01-161, 1992 WL 808095, at *5, Del Pesco, A.J. (Oct. 8, 1992) (fact that director "wore several hats" and may not ultimately be found to have been sued in his capacity as director, thereby making him ineligible for indemnification, did not prevent him from receiving advances).
Heffernan, 965 F.2d at 372.
See 8 Del. C. § 145(c); Mayer v. Executive Telecard, Ltd., C.A. No. 95 Civ. 5403 (BSJ), 1997 WL 16669, at *2, Jones, D.J. (S.D.N.Y. Jan. 17, 1997).
C.A. No. 95 Civ. 5403 (BSJ), 1997 WL 16669, Jones, D.J. (S.D.N.Y. Jan 17, 1997).
88 F.3d 87 (2d Cir. 1996).
Id. at 95 (quoting District Court opinion).
Del. Super., 321 A.2d 138 (1974).
Waltuch, 88 F.2d at 96.
The new subsection also vests exclusive jurisdiction for indemnification and advancement enforcement actions with the Court of Chancery. As Delaware's business court, the Court of Chancery may be better equipped to deal with expediting this type of corporate litigation. One potential trade-off, however, is that punitive damages are no longer available. See Salaman v. Nat'l Media Corp., Del. Ch., C.A. No. 92C-01-161, 1994 WL 465534, [Del Pesco, J.] (July 22, 1994) (allowing jury award of $1.5 million in punitive damages following corporation's refusal to advance expenses pursuant to bylaw). "In the long run, the drafters of the new amendment felt the importance of expediting indemnification litigation outweighed the benefits of a punitive damage award." Brenda G. Houck, 1994 Statutory Amendments to the Delaware General Corporation Law, 20 Del. J. Corp. L. 477, 490-91 (1995).
Edward P. Welch and Matthew F. Boyer, Delaware Further Strengthens Directors' Safety Net: Advances in Indemnification, 12 Fall Del. Law. 34, 35 (Fall, 1994) (advancement determination in Citadel Holding Corp. v. Roven, Del. Supr., 603 A.2d 818 (1992), took over two years, and reasonableness of expenses determination in Salaman v. Nat'l Media Corp., Del. Super., C.A. No. 92C-01-161, Del Pesco, J. (Mar. 12, 1994), took nearly two and a half years to resolve).
Id. at *2; Mayer v. Executive Telecard, Ltd., Del. Ch., C.A. No. 14459, 1997 WL 225756, at *5, n.7, Jacobs, V.C. (Apr. 25, 1997). See, e.g., Neal V. Neumann Medical Center, 667 A.2d 479 (Cmmwlth. Ct. Pa. 1995) (corporation's bylaws provided for mandatory indemnification of fees incurred in enforcement actions).
Del. Ch., C.A. No. 14459, 1997 WL 225756, Jacobs, V.C. (Apr. 25, 1997).
In re Central Banking Sys., Inc., Del. Ch., C.A. No. 12497, 1993 WL 183692, at *3-*4, Jacobs, V.C. (May 11, 1993).

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