Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Nov. 29 — A limited liability company can’t avoid advancing a former executive’s litigation expenses by claiming it was fraudulently induced into entering an employment agreement, the Delaware Supreme Court ruled Nov. 28 ( Trascent Mgmt. Consulting LLC v. Bouri , 2016 BL 393911, Del., No. 2016, 11/28/16 ).
Trascent Management Consulting, under its LLC agreement with former managing principal George Bouri, must advance Bouri’s litigation expenses until a court determines indemnification isn’t required, Chief Justice Leo E. Strine Jr. said. The ruling affirms a January bench decision by the Delaware Chancery Court.
Under Delaware law, companies may provide indemnification rights in their bylaws or employment agreements that allow officers and directors to be reimbursed for employment-related losses, including legal expenses. However, such agreements generally require an employee to return any advanced funds if it’s ultimately determined that the employee isn’t eligible for an indemnification.
The state high court said Trascent may later show that Bouri isn’t entitled to indemnification, but can’t go back on its promise to provide an advancement by alleging the parties’ employment contract is invalid.
Trascent sued Bouri in April 2015, saying the former executive violated an employment agreement by making false statements about the company and the reasons for his departure.
In response, Bouri claimed the company had to advance his expenses related to defense of the lawsuit under his employment agreement and Trascent’s operating agreement.
However, the company countered that Bouri wasn’t entitled to an advancement because he made misrepresentations during employment negotiations.
The high court found that advancement disputes are summary proceedings under Delaware law. Trascent can’t escape its advancement obligations “by injecting into a summary advancement proceeding a defense based on the argument that the underlying contract under which the parties are operating is invalid altogether, because of fraud in the inducement,” Strine said. “Sanctioning that defense would undermine the General Assembly’s purpose in making advancement proceedings summary in nature.”
To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com
To contact the editor responsible for this story: Yin Wilczek at firstname.lastname@example.org
The decision is available at //src.bna.com/kmS.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)