For Convicted CEO, Legal Fee Payment Depends on the Agreement


When is a company obliged to pay the legal fees of a wayward employee? The answer generally depends on the precise wording of the employee agreement, if an agreement exists.

A good case in point is the recent one of Frances Flood, the CEO of ClearOne Communications, who left the company in 2004 while under SEC investigation. Things didn’t turn out well for her: She was indicted in 2007 and convicted in 2009 of nine felony counts and sentenced to four years in prison for falsifying revenue of one of the company’s subsidiaries.

Through all this, Flood continued to pursue a case against her former company, trying to get them to pay her for the legal fees she had incurred. She claimed that the indemnification provision of her Employment Separation Agreement required the company to advance her legal fees.

On August 30, 2010, the U.S. Court of Appeals for the 10th Circuit ruled against her and found that as long as the company had acted in good faith in denying her fees, she wasn’t entitled to any money. So now it seems very likely that ClearOne will not be paying the CEO-turned-convict’s legal fees.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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