Marino v. Patriot Rail Company LLC, C.A. No. 11605 (Del. Ch. Feb. 29, 2016)

The Court of Chancery addressed a company’s attempt to avoid advancing expenses to a former director based on language found in the company’s Certificate of Incorporation. The company contended that the following provision required advancement be provided only to current officers and directors: “This Corporation shall indemnify and shall advance expenses on behalf of its officers and directors to the fullest extent permitted by law in existence either now or hereafter.” The Court disagreed with this argument and found that the language noted above mandated advancement to both present and former fiduciaries.

BOTTOM LINE: If you wish to avoid advancement obligations to former fiduciaries, the certificate of incorporation must include explicit language to the effect that (a) the advancement/indemnification provision can be amended retroactively or (b) directors and officers lose the right to advancement upon resignation, retirement, or removal, even if the claim at issue arose before their resignation, retirement, or removal.