In what could only occur in Bizarro World, your company sues a recently departed officer/director (or is sued by the same), and the company suddenly finds itself paying for the officer’s defense against your claims. So the company is footing the bill not only for its own attorney fees but for its adversary’s. Crazy? Welcome to the world of fee advancement, a doctrine that often requires a company to reimburse an executive for fees incurred in litigation as they accrue.
The stated policy reasons for fee advancement make perfect sense. As the Delaware Supreme Court noted, the purposes of advancement are to “promote the desirable end that corporate officials will resist what they consider unjustified suits and claims, secure in the knowledge that their reasonable expenses will be borne by the corporation they have served if they are vindicated,” and “encouraging capable women and men to serve as corporate directors and officers, secure in the knowledge that the corporation will absorb the costs of defending their honesty and integrity.” A company’s most senior executives want and indeed need to know that the company will pay for their attorney fees as they accrue when they are sued for acts in their corporate capacity. Without advancement, senior executives would be forced to bear the burden of costly litigation foisted upon them merely by virtue of their officer or director status.
