Those who follow Directors’ and Officers’ indemnification and advancement issues know that there are a host of recurring questions surrounding executives’ advancement rights, including whether there are duration or amount limits on a company’s advancement obligations. In the following guest post, John McCarrick, a partner at the Robinson & Cole law firm in New York, takes a look at these issues in the context of recent high-profile dispute involving executives at JPMorgan. Our thanks to John for allowing us to publish his article guest post on this site. Here is John’s article.
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Companies routinely commit to broad indemnification and advancement obligations for directors and officers to encourage qualified individuals to serve without fear that their corporate affiliation will place their personal assets at risk. Those protections serve an important governance function. They help companies recruit capable directors and officers in an environment where corporate service can generate costly litigation, even for individuals who ultimately are vindicated.
But advancement rights can create a different problem when they are drafted broadly and made mandatory. If the governing documents contain few conditions, courts may enforce the obligation as written, even where the company believes the defense costs are excessive or abusive. The recent JPMorgan dispute involving Charlie Javice and Olivier Amar illustrates the practical consequences of that drafting choice.
Prior to the mid-1930s, corporate directors and officers faced liability principally under state corporate law — shaped by the business judgment rule, which gave directors broad protection for good faith decisions, and by common law indemnification principles, which allowed corporations to reimburse directors and officers who successfully defended claims brought in their corporate capacity. The exposure was real but manageable. The legal framework, while imperfect, gave directors and officers reasonable confidence that faithful service would not end in personal financial ruin.
That balance changed after Congress enacted the federal securities laws. The Securities Act of 1933 and the Securities Exchange Act of 1934 introduced forms of personal exposure that were more direct, more severe, and more difficult for directors and officers to manage through ordinary care alone.
Two statutes, passed in the wake of the stock market crash in 1929, fundamentally altered that calculus. Section 11 of the 1933 Act imposed strict liability on directors for material misstatements or omissions in registration statements. Unlike common law fraud claims, Section 11 required no proof of scienter — a plaintiff need not show that a director knew the registration statement was false or intended to deceive. A director who signed a registration statement containing a material misstatement was presumptively liable, subject only to a due diligence defense requiring proof of a reasonable investigation and reasonable grounds to believe the statements were accurate.
This was a profound change. Directors who had previously relied on management representations and expert opinions without independent verification suddenly faced personal exposure measured by the decline in a security’s value following a materially misleading registration statement. For outside directors in particular — who typically lacked access to the detailed information available to management — the exposure was substantial and difficult to manage through ordinary care alone.
The 1934 Exchange Act added further exposure for corporate officers through its antifraud provisions, most importantly what would become Rule 10b-5, and through the short-swing profit recovery provisions of Section 16(b). Together, the two statutes created a federal liability regime that overlaid and significantly exceeded the state law exposure directors had previously faced.
The immediate practical consequence was a director-service problem. Prominent businesspeople, lawyers, and financiers had long viewed board service as a mark of prestige and civic responsibility. After the federal securities laws expanded personal exposure, however, many qualified individuals had reason to reconsider whether board service was worth the risk.A director of modest personal wealth sitting on the board of a company that subsequently conducted a public offering faced potential liability measured in millions of dollars for a registration statement he or she had reviewed but not independently verified.
This was not a theoretical concern. The deterrent effect of strict liability on the willingness of capable people to serve as directors was recognized almost immediately after the statutes’ enactment, and it created pressure on the legal system to respond. The problem was especially acute for outside directors. They were asked to certify corporate disclosures but often lacked the day-to-day access to information available to management. After Section 11, reliance on management and experts no longer fully insulated them from personal exposure.
Even before any state legislature had enacted a statutory indemnification framework, corporations were advancing legal fees and indemnifying their directors under common law authority and pursuant to charter and bylaw provisions.
The legal environment surrounding advancement and indemnification was not without complexity. The SEC initially took the position that indemnifying directors against even alleged Securities Act liability was contrary to public policy. The concern was that indemnification would dilute the personal accountability Congress intended to impose.
That position became harder to defend once courts and practitioners distinguished between indemnifying adjudicated liability, advancing defense costs, and indemnifying settlements that involved no admission or finding of wrongdoing. The deterrence rationale carried less force when applied to a director who was ultimately vindicated after incurring substantial legal fees, or to a settlement resolving disputed claims without any finding of misconduct.
As advancement and indemnification practices expanded and their legal foundations became more settled, pressure grew for a legislative solution. Delaware responded with its landmark 1967 statute, which codified and clarified permissible advancement and indemnification rather than creating those protections from whole cloth.
Prior to 1967, significant uncertainty surrounded whether and under what circumstances advancement or indemnification could be available against liability or litigation costs. Delaware courts provided inconsistent guidance on whether charter or bylaw advancement or indemnification provisions were even enforceable.
By the mid-1960s, the need for a legislative fix had become clear. The prior statutory framework, codified at 8 Del. C. § 122(10), was permissive, required affirmative corporate action, and prohibited indemnification where a director or officer had been adjudged liable for negligence or misconduct. Common law permitted indemnification in some circumstances, but it created no enforceable right to indemnification. Delaware’s 1967 statute addressed those uncertainties by clarifying and expanding the prior framework. It created a judicially enforceable mandatory right to indemnification for directors and officers who prevailed in litigation and authorized advancement before adjudication.
The same protections that solved the director-service problem can create a different problem for corporations and acquirers. When advancement rights are drafted broadly and made mandatory, the company may be required to fund defense costs it views as excessive, unreasonable, or only tenuously connected to covered service.
The recent JPMorgan dispute with Javice and Amar illustrates that tension. Charlie Javice and Olivier Amar were the founders of a company called “Frank,” a student financial aid application assistance company. In January 2023, Javice and Amar were accused of fraudulently inflating data supplied to JPMorgan in connection with JPMorgan’s acquisition of Frank. They were later charged in a four-count grand jury indictment with securities fraud, wire fraud, bank fraud, and conspiracy. Javice and Amar were convicted on all counts in March 2025 and are appealing those convictions. JPMorgan also sued Javice and Amar directly, alleging fraud against the bank.
The unusual feature of the dispute was not the existence of fraud claims, but the scale of the advancement obligation that followed.Javice and Amar have collectively incurred $136 million fighting their criminal and civil cases – with Javice responsible for $74 million of that amount. JPMorgan has attempted, largely without success, to stop or limit the ongoing legal spend, which it was required to advance under Delaware law, JPMorgan’s bylaws, and the merger agreement it signed with Frank.
In its recent Delaware Chancery Court filings, JPMorgan argued that the defense teams were treating the advancement obligation as a “blank check” and identified expenses it characterized as non-legal or excessive, including the following:
- Food and snacks: Over $530 for gummy bears and a $581 dinner that included a $161 seafood tower.
- Travel and luxury: More than $25,800 in luxury hotel upgrades and roughly $3,000 in first-class airfare.
- Personal items: Charges for cellulite butter, a Cookie Monster toddler toy, and a pet hair roller.
- Subscriptions: Monthly Spotify charges and other personal effects.
The examples were rhetorically powerful, but the court’s ruling underscores that vivid billing objections are not necessarily enough to defeat a mandatory advancement right absent proof satisfying the applicable bad-faith standard.
In late June 2026, the Delaware Court of Chancery held that JPMorgan had not met its “challenging burden” of showing that Javice’s legal fees were “so unmistakably unreasonable or clearly abusive” that they could only have been incurred in bad faith. The court also rejected JPMorgan’s effort to stop funding Amar’s disputed legal fees for a similar period.
Although adverse to JPMorgan, the Court of Chancery’s reading of the advancement obligations as broader and less susceptible to challenge than permissive indemnification obligations appears correct. It also reinforces the practical point that the “bad faith” standard is difficult to establish.
The Delaware Court of Chancery has been unsympathetic to corporations’ efforts to avoid mandatory advancement obligations undertaken in their bylaws. The reason is structural: Delaware’s advancement statute is enabling meaning corporations may broaden advancement rights, but also may draft conditions and limitations into the governing instrument. If they fail to include those limitations, the Court of Chancery generally will not add them after the fact.
However, if such additional conditions or limitations are not included in the bylaws advancement provision, the Court of Chancery will not allow new conditions or limitations to be applied in the face of an advancement request from a director or officer. That principle is reflected in Weil v. VEREIT Operating Partnership, L.P., C.A. No. 2017-0613-JTL (Del. Ch. Feb. 13, 2018), where the Court of Chancery explained that advancement is a contractual right governed by the operative agreement. Where the agreement conditions advancement only on an undertaking to repay, the company may not later impose additional requirements such as proof of ability to repay or a secured bond.
The JPMorgan dispute with Javice and Amar continues. The drafting lessons are straightforward. First, companies should decide at the drafting stage whether advancement rights are intended to be effectively unconditional after receipt of an undertaking to repay. If not, the bylaws or other operative agreement should say so expressly.
Second, acquirers should pay particular attention to advancement and indemnification provisions in merger agreements. Where an acquirer assumes obligations to former directors or officers of the target, the agreement should address not only the scope of covered proceedings, but also procedures for review, billing support, reasonableness objections, and, where appropriate, security for repayment obligations. Depending on the transaction and the constituency being protected, those mechanisms may include billing protocols, periodic review rights, exclusions for plainly personal expenses, procedures for disputed invoices, undertakings with repayment support, or negotiated caps for specified categories of expenses.
Advancement rights developed to solve a real governance problem: capable directors and officers needed assurance that corporate service would not expose them to ruinous defense costs. But the JPMorgan dispute illustrates the other side of that bargain. When advancement rights are drafted broadly and without meaningful conditions, courts may enforce them as written even where the resulting defense spend is extraordinary. The drafting lesson is not that advancement should be narrow in every case. It is that companies and acquirers should decide in advance how broad the obligation should be and put any limits in the governing documents before a dispute arises.
[John F. McCarrick is an attorney and partner in the New York City office of Robinson & Cole, LLP.]