Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...
March 1 — Patriot Rail Co. must advance some of the legal fees and expenses its former chief executive officer incurs in opposing a bid to add him as a debtor in a California case, the Delaware Chancery Court ruled Feb. 29.
Vice Chancellor J. Travis Laster rejected an argument that Patriot Rail shouldn't have to advance former chairman and CEO Gary Marino's legal expenses because he no longer is a director or officer of the company.
Instead, Laster found that Patriot Rail's charter—which mandates an advancement “to the fullest extent permitted by law”—provides coverage that applies back to actions Marino took while serving as a director or officer of the company.
Delaware's indemnification and advancement statute's “continuation” and “no termination” clauses allow companies to implement mandatory advancement rights that provide coverage to individuals for actions taken during their periods of service. Such rights continue after the individuals cease to serve, and can't be altered or eliminated after the individuals are exposed to litigation, Laster said.
The judge added that this approach was supported by state public policy in favor of encouraging capable men and women to serve as corporate directors.
“By establishing a statutory presumption of continuing coverage for actions taken during the period of service, the Continuation Clause and the No Termination Clause ensure that the public policy interest prevails, unless the individuals know when they choose to serve that their rights will terminate or can be cut off later,” he wrote.
In detailed instructions, the court specified several actions each party must take to implement its ruling, including that Marino's counsel submit monthly advancement demands for fees and expenses incurred in the California litigation.
The advancement claims stemmed from a lawsuit filed in the U.S. District Court for the Eastern District of California in which Sierra Railroad Co. alleged that Patriot Rail had misused confidential information obtained during failed merger negotiations and that it breached a letter of intent for an asset purchase. While the underlying litigation was ongoing, Patriot Rail was sold and Marino resigned from his positions with the company.
After being awarded more than $50 million in damages from the litigation, Sierra filed a motion asking the California court to add Marino as a debtor to the judgment. Marino subsequently sought advancement from Patriot Rail for defending against the motion.
Laster found Marino was entitled to advancement for defending against claims that he personally caused Patriot Rail to misuse Sierra's confidential information because the alleged conduct occurred while he served as a director and officer of the company.
However, the court declined to award advancement for Marino's defense against an assertion that he transferred funds from the company to avoid judgment because that conduct occurred after he left Patriot Rail.
To contact the reporter on this story: Michael Greene in Washington at email@example.com
To contact the editor responsible for this story: Yin Wilczek at firstname.lastname@example.org
The opinion is available at http://src.bna.com/cYf.
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)