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Litigation: Directors and officers must read their indemnification and advancement rights carefully

Boards of directors may be able to deny advancement requests even if company bylaws seem to impose mandatory advancement

Under Delaware law, indemnification is mandatory if a director or officer successfully defends a claim against himself. But, who pays for the defense until the case is finally decided? Such expenses could easily bankrupt all but the very wealthy. Under Delaware law, advancement of such expenses is discretionary and is determined by the precise language of a company’s charter, bylaws or separate agreement. The following case illustrates why you should read those provisions carefully.

On Dec. 31, 2012, in Miller v. Palladium Industries, Inc., the Delaware Court of Chancery granted judgment for Palladium Industries, Inc., finding that under its bylaws, Palladium did not owe advancement to David F. Miller III, a former director and the longtime CEO of Palladium, because Palladium’s board of directors formally denied the request as permitted under Palladium’s advancement bylaw.


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John Reed

John Reed is a partner the Delaware office of DLA Piper, where he concentrates his practice on corporate litigation and counseling. He can be contacted...

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