Miller v. Palladium Industries, Inc., C.A. No. 7475-VCN (Del. Ch. Dec. 31, 2012) (Noble, V.C.)

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In this letter opinion, the Court of Chancery granted the defendant-corporation’s motion for judgment on the pleadings, and dismissed the plaintiff’s action brought under 8 Del. C. § 145(e) for advancement of legal fees and expenses, reasoning that the corporation’s bylaws required mandatory advancement unless the board of directors specifically determined not to pay a particular request for advancement in a timely manner, which action was taken by the board.
 
Plaintiff David Miller served as president, chief executive officer, and a director of defendant Palladium Industries, Inc., its operating subsidiary VisionAid, Inc., and their predecessors from 1983 until 2011.  In 2011, VisionAid sued Miller in the Court of Chancery for breach of fiduciary duty as an officer and director of it and Palladium, as well as for misappropriation, waste, and conversion.  Following initiation of the suit, Miller sought advancement from Palladium for the fees and expenses incurred in defending the action.  Palladium’s bylaws generally provided for the indemnification and advancement of legal fees and expenses incurred by its directors and officers sued in their corporate capacities.  Pertinently, the bylaws stated that “[e]xpenses incurred by [directors or officers] . . . in defending a proceeding shall be paid by the corporation in advance of such proceeding’s final disposition unless otherwise determined by the Board of Directors in the specific case . . . .”  Approximately four weeks after receiving Miller’s request for advancement, the Palladium board convened a special meeting, during which it voted to deny the request as not being in the company’s best interest.

When his request was denied, Miller brought an action pursuant to 8 Del. C. § 145(e), asserting that Palladium’s bylaws provided for mandatory advancement.  Palladium moved for judgment on the pleadings, contending that advancement remained subject to the board’s taking action specifically to reject an advancement request. 
 
While observing that Delaware policy favors indemnification and advancement as a means of attracting qualified individuals to serve as corporate directors and officers, and, in turn, “supports the approach of resolving ambiguity in favor of indemnification and advancement,” the Court agreed with Palladium’s interpretation of the bylaws.  The Court explained that “[t]he only reading of Palladium’s advancement provision is that advancement shall be paid (i.e., up to this point, it is mandatory) unless Palladium’s board specifically determines not to pay a specific advancement.”  That is, “Palladium must advance legal fees and expenses if the board does not adopt a contrary directive[ ] . . . in a specified time after receipt of a request for advancement.”  The Court found that the board had so acted, and had done so in a timely fashion.  Accordingly, the Court concluded that “Miller’s case for advancement must be dismissed as a matter of law.”

The full opinion is available here.