Under the DGCL, advancement and indemnification is only appropriate if the director or officer is defending a claim that exists “by reason of the fact that the person is or was a director, officer, employee or agent of the corporation.” See 8 Del. C. § 145.
Generally speaking, Delaware law broadly permits indemnification in cases arising “by reason of the fact” of a director’s position with the company, so long as the director “acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation.” 8 Del. C. §§ 145(a) and (b).
In this regard, a corporate officials’ indemnification and advancement rights do not extend to proceedings brought against them other than “by reason of the fact” of their corporate service. Because advancement of expenses is available only for proceedings in which a director or officer has a colorable right to indemnification, an official’s advancement rights, like indemnification rights, applies only to actions brought against the official “by reason of” the corporate service.
If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.