Sutherland Global Must Advance Ex-Director's Legal Fees

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By Michael Greene

July 6 — A former Sutherland Global Holdings Inc. director is entitled to an advancement of legal fees and expenses incurred in defending against civil and criminal proceedings related to his involvement in land development projects in India, the Delaware Chancery Court ruled July 5 ( Narayanan v. Sutherland Glob. Holdings Inc. , 2016 BL 215084, Del. Ch., No. 11757-VCMR, 7/5/16 ).

At issue was whether Sutherland's bylaws and an indemnification agreement entered into between the company and plaintiff Muthu Narayanan must be read together in determining whether there was a right to advancement.

Vice Chancellor Tamika Montgomery-Reeves held that the company's bylaws and the agreement are disjunctive, and provide independent bases for advancing Narayanan's legal fees.

Accordingly, the court rejected the company's argument that Narayanan wasn't entitled to an advancement because he allegedly failed to satisfy a condition that only appeared in the indemnification agreement.

Exercising Stock Options

The litigation between the parties started after Narayanan filed a lawsuit in New York federal court against Sutherland seeking to exercise stock options. In response to the lawsuit, Sutherland filed a counterclaim alleging that Narayanan breached his fiduciary duties in connection with land acquisition transactions in India and hadn't fully cooperated with an internal investigation of the deals.

Less than month after the New York action was filed, Sutherland's controlling stockholder Dilip Vellodi instructed employees to file two similar criminal complaints in India against Narayanan.

Narayanan subsequently demanded that Sutherland advance his legal fees and expenses for the India criminal proceedings and the New York action.

The court, citing its recent ruling in Charney v. American Apparel Inc., 2015 BL 294269 (13 CARE 1970, 9/18/15), concluded that Narayanan was entitled to an advancement under the company's bylaws.

Charney stands for the proposition that the unavailability of advancement under one source of rights does not foreclose the possibility of advancement under another,” Montgomery-Reeves wrote.

The court also found that the advancements rights were independently conferred by the bylaws and the indemnification agreement.

“Had the parties intended the instruments to operate conjunctively, they only needed to replace the non-exclusivity provisions with language to that effect,” the judge said.

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 ywilczek@bna.com

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