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Showing 26 posts in Indemnification and Advancement.
Sergey Aleynikov, a former computer programmer at Goldman, Sachs & Co., has been on a legal roller coaster for the past few years. In the span of few days, that roller coaster plummeted steeply—twice.
First, on January 20, 2017, the Delaware Supreme Court affirmed a trial court decision that Aleynikov could not recover advancement and indemnification for the legal expenses he is incurring in defending himself against counterclaims brought by two Goldman Sachs entities in New Jersey federal court.
Hold on to Your (Top) Hat: ERISA Section 502(a)(3) May Be Used to Enforce the Terms of a “Top-Hat” Benefits Plan
Thanksgiving is typically a time for gratitude, gathering with family, and acts of kindness among fellow men and women. But in one recent case, a bank used Thanksgiving to force-feed a separation agreement to its outgoing president.
The bank later claimed that the ex-officer had released his rights to benefits under a “top-hat” benefits plan, even though it was not mentioned in the separation agreement. In Buster v. Compensation Committee of the Board of Directors of Mechanics Bank, the plaintiff alleged, and the court agreed, that the bank’s interpretation of the separation agreement did not fly.
Steven Buster worked as president of Mechanics Bank between 2004 and 2012. During his tenure, Mechanics Bank had two retirement plans. The first was the Supplemental Executive Retirement Plan (SERP), a so-called “top-hat plan” because it was available only to a few, select senior employees. The accrual of benefits for the SERP was frozen in 2008. In that year, the bank adopted a separate Executive Retirement Plan (ERP). Read More ›
Remember 2002? That year, A Beautiful Mind won best picture, and the University of Maryland won the NCAA basketball tournament. It is also the year that Rite Aid and its former General Counsel, Franklin Brown, began litigating over Brown’s indemnification rights. They are still fighting, which brings us to Brown v. Rite Aid Corp., CA No. 11596-VCL, the latest chapter in the 14-year-long dispute.
The Delaware Chancery Court is generally a forgiving forum for an director or officer seeking to vindicate indemnification or advancement rights conferred by a Delaware company. But there are limits, and a recent decision by the Chancery Court in the Brown case concerned one such limit: a claim for indemnification must be brought within three years of final disposition of the proceeding that triggered the indemnification demand. Read More ›
“Some But Not All”: Delaware Court Awards Advancement to Former Officer, But Only for Part of a Case
When a former officer or director of a company must defend against legal claims, advancement of legal fees by the company can be critical to a successful defense. The Delaware Chancery Court frequently addresses issues related to advancement of fees for former officers and directors. For example—as we discussed in this post—that court recently resolved a claim by former Vice President Al Gore and a colleague for advancement of legal fees, ruling that they were entitled to advancement from the company that bought their employer (Current Media) and assumed Current Media’s indemnification and advancement obligations, even though they had never worked for the purchaser Read More ›
For both companies and individual officers and directors, it’s critically important to know the protections that are available to corporate leadership before a company runs into trouble.
The Delaware Chancery Court’s recent decision in Hyatt v. Al Jazeera America Holdings II, LLC, presents an unusual twist on the typical advancement litigation. It highlights how proper planning can ensure the intended protections are available when they are needed.
Typically, advancement cases follow a familiar pattern: a company promises officers and directors (and sometimes employees) that in the event of legal proceedings related to their duties at work, they will be protected by advancement of legal costs and indemnification. Read More ›
In our last post, we discussed the recent decision Luis v. United States, in which the Supreme Court held that innocent assets are out of the government’s reach prior to trial. Justice Elena Kagan’s short but notable dissent in Luis addressed the issue of whether the government should be able to reach a defendant’s assets at all, allegedly “tainted” or not, prior to conviction. Read More ›
Every defendant is presumed innocent until proven guilty in a court of law. And the Sixth Amendment to the Constitution provides a defendant has the right to counsel of his or her own choosing. These rights are foundational to our criminal justice system.
However, prior to the Supreme Court’s decision yesterday in Luis v. United States, the government was able to undermine these basic rights. In cases involving conspiracy, healthcare fraud, and banking fraud, federal statutes allowed the government to seek a pretrial restraining order preventing defendants from using their innocently obtained assets to retain counsel. Read More ›
The turn of the calendar is always a good time to reflect on what has come before and preview what lies ahead. In this post, we count down our most popular posts of 2015 about executive disputes. Later, we’ll look at what to expect in 2016. Read More ›
When a company sues an executive, one question is who will pay the legal bills. As we covered earlier this year, that’s been an issue in Dov Charney’s ongoing legal battle with his former employer, American Apparel. Specifically, after American Apparel sued Charney for violating their standstill agreement by getting involved in shareholder suits and commenting to the press, Charney sued American Apparel in Delaware for indemnification and advancement. He claimed that the suit was brought “by reason of the fact” that he had been CEO, and thus fell within the indemnification provisions in various corporate documents. Read More ›
Indemnification and advancement are intended to protect individuals from claims asserted against them by shareholders or regulators by virtue of their position with a business entity. A minimum level of protection is guaranteed by statute for corporate officers and directors. As we covered in this post, statutory backstops do not exist for employees of alternative business entities, such as limited partnerships (“LPs”), limited liability partnerships (“LLPs”) and limited liability companies (“LLCs”). Because these alternative business entities offer different advantages, they are chosen as frequently as corporations when a new business is formed. Therefore, protection of individuals working for these entities will be a growing issue.
Alternative business entities are desirable because, among other things, the laws under which they are formed are designed to favor flexibility. Management of an alternative business entity is principally controlled by the operating agreement among the stakeholders, which may contain whatever provisions the stakeholders deem appropriate. For example, the Delaware Limited Liability Company Act (the “DLLCA”), which governs the formation and operation of Delaware limited liability companies, specifically provides that “it is the policy of this Chapter to give maximum effect to the principal of freedom of contract and to the enforceability of limited liability company agreements.” 6 Del. C.§ 18-1101(b). The Delaware Revised Uniform Limited Partnership Act (“DRULPA”) has a similar policy statement, 6 Del. C.§ 17-1101(c). However, if the agreement pursuant to which the alternative entity was formed does not expressly create a right to indemnification and advancement, employees may not have protection or resources to mount a proper defense in a time of need. Read More ›