Editor
Adam C. Buck
Dorsey & Whitney, LLP
111 S. Main Street, Suite 2100
Salt Lake City, UT 84111
(801) 933-4035
[email protected]
Contributors
Michael A. Dorelli
Alex J. Dudley
Dentons
2700 Market Tower
10 West Market Street
Indianapolis, IN 46204
(317) 635-8900
[email protected]
[email protected]
Phillip Buffington Jr.
Timothy J. Anzenberger
Adams and Reese LLP
1018 Highland Colony Parkway, Suite 800
Ridgeland, MS 39157
(601) 353-3234
[email protected]
[email protected]
§1.1 Introduction
This chapter summarizes significant legislative and case law developments in 2020 concerning the indemnification of directors, officers, employees and agents by the corporations or other entities they serve, as well as the rights of such persons to the advancement of litigation expenses before final resolution of the litigation.[1] This chapter also refers to legislative developments under Delaware law and the Model Business Corporation Act.
§1.2 Indemnification and Advancement – 8 Del. C. § 145
The Delaware General Corporation Law (“DGCL”),[2] codified at 8 Del. C. § 145, authorizes (and at times requires) a corporation to indemnify its directors, officers, employees, and agents for certain claims brought against them. Section 145 also allows a corporation to advance funds to those persons for expenses incurred while defending such claims. Specifically, Sections 145(a) and (b) broadly authorize a Delaware corporation to indemnify its current and former corporate officials for expenses incurred in legal proceedings to which a person is a party “by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.” Upon successfully defending against a legal proceeding brought “by reason of the fact” that the person is or was a director or officer of the corporation, § 145(c) requires the corporation to indemnify that person for expenses (including attorneys’ fees) reasonably incurred in connection with the defense. “For indemnification with respect to any act or omission occurring after December 31, 2020, references to ‘officer’ for purposes of” § 145(c) “shall mean only a person who at the time of such act or omission is deemed to have consented to service by the delivery of process to the registered agent of the corporation.” With respect to persons “not a present or former director or officer of the corporation,” the corporation “may indemnify” them “against expenses (including attorneys’ fees) actually and reasonably incurred . . . to the extent he or she has been successful on the merits . . . .”
Pursuant to § 145(e) the corporation also may advance “expenses (including attorneys’ fees)” incurred by a corporate official to defend against an investigation or lawsuit prior to final disposition.
The Model Business Corporation Act (MBCA) contains similar provisions, as do alternative entity statutes of Delaware and many other jurisdictions. For example, 6 Del. C. § 18-108 provides that “[s]ubject to such standards and restrictions, if any, as are set forth in its limited liability company agreement, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.” Similarly, Delaware’s Revised Uniform Limited Partnership Act states “[s]ubject to such standards and restrictions, if any, as are set forth in its partnership agreement, a limited partnership may, and shall have the power to indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever.” 6 Del. C. § 17-108. Thus, limited liability companies and partnerships have a “wider freedom of contract to craft their own indemnification” and advancement schemes “than is available to corporations under § 145 of …
