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When Delaware Companies Are Required to Advance Fees

By Kimberly S. Greer

A recent Delaware Chancery Court case may send Delaware companies scrambling to review their bylaws to determine if they are required to advance fees in more instances than first thought. On June 23, 2008, in an instance of first impression, the court held that a company had to advance fees to its prior outside litigation counsel in subsequent litigation by the company against the law firm, under the company bylaws covering advancement of fees for its “agents.”

Just four days earlier, the court issued two other opinions in advancement of fees cases which also emphasized that the language of a company's advancement of fees provision is essential to defining when a company has to advance fees. The first case held that a company cannot withhold advancement of fees to its former directors under a broadly worded advancement of fees provision, just because the former directors refused to accept settlement proposals in the underlying securities litigation. The second case held that where the company was only obligated to provide advancement of fees for the defense or other defensive disposition of actual or threatened proceedings, the company had no obligation to advance fees to a former board member who had filed a lawsuit against the company following his removal for cause from the board.

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