Just last month the Delaware Court of Chancery found in favor of two former corporate officers of Unisys Corporation (“Unisys”). In a well-reasoned 67-page opinion the court engages in a painstaking review of Delaware advancement law.
Unisys sued two of its former Vice Presidents for a variety of alleged misdeeds, including but not limited to the theft of intellectual property upon their departure from employment.[1] The two former officers, Leon Gilbert and Michael McGarvey, sued Unisys in Delaware for the advancement of their legal fees in defending against that legal action. Unisys declined their request.
The court construed any ambiguities in Unisys’ certificate of incorporation and Bylaws against Unisys. Moreover, it concluded that the Vice Presidents were covered officers and that their alleged conduct was covered despite the fact that the V.P.’s were not elected by the Board of Directors and Unisys had about 150 Vice Presidents. The Court stated, in part:
Section 145(f) of the DGCL permits a corporation to grant advancement rights in its corporate documents or by separate contract. Unisys provides advancement rights in Article X of the Certificate… General rules of contract interpretation apply when construing the provisions of a company’s charter or bylaws. “Delaware adheres to the ‘objective’ theory of contracts, i.e. a contract’s construction should be that which would be understood by an objective, reasonable third party.” “The Court will read a contract as a whole and we will give each provision and term effect, so as not to render any part of the contract mere surplusage…” “Rights to indemnification and advancement are deeply rooted in the public policy of Delaware corporate law in that they are viewed less as an individual benefit arising from a person’s employment and more as a desirable mechanism to manage risk in return for greater corporate benefits.” “We eschew narrow construction of the statute where an overliteral reading would disserve these policies.” As such, Delaware policy “supports the approach of resolving ambiguity in favor of indemnification and advancement.” Stated differently, if there is any ambiguity in the scope of an advancement provision, the court generally errs on the side of providing advancement.
(Citations omitted) (Memorandum Opinion decided August 13, 2024)
If you are an executive or officer that has been sued by your former employer, be sure to hire experienced legal counsel at the outset to determine if you are entitled to advancement of the legal fees incurred in defense of that suit.
[1] More specifically, Unisys alleged in a Federal Court action that the two executives “improperly solicited talent from Unisys and downloaded thousands of Unisys documents containing critical business strategies and technologies.”