Corporations: Exculpation, Indemnification (Prof. D) Flashcards
Fl. Stat. § 607.0857 A corporation shall have the power •to purchase and maintain insurance •
on behalf of and for the benefit of an individual
who is or was a director or officer of the corporation, or who, while a director or officer of the corporation, is or was serving at the corporation’s request as a director, officer, manager, member, partner, trustee, employee, or agent of another domestic or foreign corporation, limited liability company, partnership, joint venture, trust, employee benefit plan, or other enterprise or entity, •against liability asserted against or incurred by the individual
in that capacity or
arising from his or her status as a director or officer, •whether or not the corporation would have power to indemnify or advance expenses to the individual against the same liability under this chapter.
What do we call this type of insurance?
It is called “directors and officers” insurance.
What types of lawsuits are usually covered under D&O insurance?
- Shareholder suits over company or stock performance.
- Creditor or investor suits over mismanagement of fiduciary duties which might result in financial losses or bankruptcy.
- Misuse of company funds.
- Misrepresentation in your company’s prospectus.
- Theft of intellectual property.
- Decisions that exceeded the authority granted to a company officer.
- Failure to comply with workplace laws.
- Employment practices and HR issues.
- Pollution and other regulatory claims.
- Cyber liability, including data breaches.
What does D&O insurance coverage typically pay for?
It pays for a legal defense.
It pays settlements and judgments.
What is “indemnification?”
Indemnification occurs when a person is compensated for a loss.
In our context, it is a payment made to officers and directors to cover expenses they have had in relation to a lawsuit against them arising because they were an officer or director of the company.
Fl. Stat. § 607.0851(1)
[A] corporation may indemnify an individual who is a party to a proceeding
because the individual is or was a director or officer against liability incurred in the proceeding if:
(a) The director or officer acted in good faith;
(b) The director or officer acted in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation; and
(c) In the case of any criminal proceeding, the director or officer had no reasonable cause to believe his or her conduct was unlawful.
Fl. Stat. § 607.0852
A corporation must indemnify an individual
who is or was a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the individual was a party because he or she is or was a director or officer of the corporation against expenses incurred by the individual in connection with the proceeding.
Fl. Stat. § 607.0853(1)
A corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse expenses incurred in connection with the proceeding by an individual who is a party to the proceeding
because that individual is or was a director or an officer if the director or officer delivers to the corporation a signed written undertaking of the director or officer to repay any funds advanced if:
(a) The director or officer is not entitled to mandatory indemnification under s. 607.0852; and
(b) It is ultimately determined . . . that the director or officer has not met the relevant standard of conduct described in s. 607.0851 or the director or officer is not entitled to indemnification under s. 607.0859.
Fl. Stat. § 607.0854(1)
Unless the corporation’s articles of incorporation provide otherwise, notwithstanding the failure of a corporation to provide indemnification, and despite any contrary determination of the board of directors or of the shareholders in the specific case, a director or officer of the corporation who is a party to a proceeding because he or she is or was a director or officer
may apply for indemnification or an advance for expenses, or both, to a court having jurisdiction over the corporation which is conducting the proceeding, or to a circuit court of competent jurisdiction. . . .
Fl. Stat. § 607.0858(1)
The indemnification provided pursuant to ss. 607.0851 and 607.0852 and the advancement of expenses provided pursuant to s. 607.0853 are
not exclusive, and a corporation may, by a provision in its articles of incorporation, bylaws or any agreement, or by vote of shareholders or disinterested directors, or otherwise, obligate itself in advance of the act or omission giving rise to a proceeding to provide any other or further indemnification or advancement of expenses to any of its directors or officers.
(4). . . a corporation may, by a provision in its articles of incorporation, limit any of the rights to indemnification or advance for expenses created by or pursuant to this chapter.
Fl. Stat. § 607.0859(1)
Unless ordered by a court . . . a corporation may not indemnify a director or officer under s. 607.0851 or s. 607.0858 or advance expenses to a director or officer under s. 607.0853 or s. 607.0858 if
a judgment or other final adjudication establishes that his or her actions, or omissions to act, were material to the cause of action so adjudicated and constitute:
(a) Willful or intentional misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder;
(b) A transaction in which a director or officer derived an improper personal benefit;
(c) A violation of the criminal law, unless the director or officer had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful; or
(d) In the case of a director, a circumstance under which the liability provisions of s. 607.0834 (liability for unlawful distributions) are applicable.
Waltuch v. Conticommodity Services, Inc.
In the end the Court agrees that Waltuch was “successful” as defined in the Delaware code. How does it define “success?”
The court notes that “vindication” is indicative of “success” (and a synonym of it).
The case law indicates that vindication only requires escape from an adverse judgment or other determination—for whatever reason.
In addition, adopting a view that success requires “winning on the merits” is inconsistent with vindication being understood to include technical defenses (e.g., statute of limitations, laches, untimely filing of an insurance claim baring recovery, etc.)
Thus mere success is sufficient under the Delaware Code.
