Advancement of legal expenses is a frequent subject of litigation in the Delaware Court of Chancery. Companies offer advancement to induce individuals to serve as officers or directors, but sometimes balk when the officer or director seeks to exercise their advancement right. Most frequently companies argue that the officer or director is not entitled to advancement because either the claim falls outside the parameters of the instrument that awards advancement or any reasonable interpretation of such instrument absolves the entities’ advancement obligation. In a recent case, Narayanan v. Sutherland Global Holdings, C.A. No. 11757-VCMR (July 5), Vice Chancellor Tamika R. Montgomery-Reeves rejected a corporation’s argument that a provision of one instrument providing for advancement limited the application of another advancement obligation that did not contain a similar limitation provision, and ruled that each instrument established an independent right to advancement.
Background
Plaintiff Muthu Narayanan served as a director and officer of Sutherland’s India subsidiary as well as a director of two additional companies formed to develop real estate in India, one owned by the subsidiary and the other owned by Sutherland’s chairman, chief executive officer, and controlling stockholder. Narayanan oversaw the advancement of millions of dollars to two land aggregators to acquire real estate on behalf of each entity. One of the development projects failed, however, when the land aggregator was imprisoned on conspiracy charges arising from similar work performed for another client, and failed to repay the money advanced to him to acquire properties for Sutherland. The controlling stockholder then started an internal investigation into the land deals which ultimately questioned Narayanan’s credibility.
