{"id":91,"date":"2016-12-05T16:41:09","date_gmt":"2016-12-05T20:41:09","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/?p=91"},"modified":"2016-12-05T16:41:09","modified_gmt":"2016-12-05T20:41:09","slug":"fraud-in-the-inducement-is-no-defense-to-advancement-claims-by-officers-and-directors","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/2016\/12\/05\/fraud-in-the-inducement-is-no-defense-to-advancement-claims-by-officers-and-directors\/","title":{"rendered":"“Fraud in the Inducement” Is No Defense To Advancement Claims By Officers and Directors"},"content":{"rendered":"

On November 28, 2016, the Supreme Court of Delaware confirmed what had become a common thread in several previous decisions by the Court of Chancery–that a Delaware entity cannot avoid expansive advancement rights\u00a0it has granted to its officers and directors by arguing that\u00a0they had fraudulently induced the company to grant those rights.\u00a0 In Trascent Mgm’t Consulting, LLC v. Bouri<\/a>, <\/em>No. 126, 2016 (Del. Supr.), the Supreme Court held that such a challenge to an officer’s right to advancement of fees and expenses for litigation was more properly heard during\u00a0later proceedings to determine whether the officer was\u00a0ultimately entitled to\u00a0a right to indemnification upon the close of the underlying proceedings.<\/p>\n

Trascent had hired Mr. Bouri as an officer and manager of the LLC with responsibility for the\u00a0human resources, IT, and finance functions.\u00a0 Mr. Bouri was employed pursuant to an employment agreement, which among other things, granted him broad rights to advancement of any fees and expenses he incurred in certain types of proceedings.\u00a0 Trascent and Mr. Bouri parted ways, and Trascent sued Mr. Bouri for, among other things, breaches of his employment agreement.\u00a0 Pointing to the terms of that employment agreement, Mr. Bouri sought advancement of his fees and expenses for defending against his former employer’s claims.\u00a0 Trascent, however, argued that the same agreement upon which its claims were founded was induced by fraud, and therefore, Mr. Bouri’s claims for advancement should be denied.<\/p>\n

The Court of Chancery rejected this defense, and the Supreme Court (with Chief Justice Strine writing for the court) affirmed that ruling.\u00a0 As the Supreme Court noted:\u00a0 “[A]llowing Trascent to avoid its contractual duty to make immediate advancement payments by making a belated fraudulent inducement claim would impede the efficiency of the summary mechanism provided by 8 Del. C.<\/em> 145(k) and impair the public policies served by contractual advancement provisions made in reliance upon that provision of the DGCL as well as the Limited Liability Company Act,” and therefore “the Court of Chancery properly refused to delay enforcing the plain language of the contract.”<\/p>\n

The Supreme Court, in a footnote, also noted that the reasoning and public policy supporting this ruling was equally applicable to agreements to arbitrate disputes–another area where the Court found these fraudulent inducement arguments to reflect “unproductive gamesmanship.” The court warned that parties should make such arguments to the arbitrator in the first instance and not a court in trying to avoid the contractual choice of venue for dispute resolution.<\/p>\n","protected":false},"excerpt":{"rendered":"

On November 28, 2016, the Supreme Court of Delaware confirmed what had become a common thread in several previous decisions by the Court of Chancery–that a Delaware entity cannot avoid expansive advancement rights\u00a0it has granted to its officers and directors by arguing that\u00a0they had fraudulently induced the company to grant those rights.\u00a0 In Trascent Mgm’t … <\/p>\n

Continue reading ““Fraud in the Inducement” Is No Defense To Advancement Claims By Officers and Directors”<\/span><\/a><\/p>\n","protected":false},"author":108,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[96,95,97,98],"ppma_author":[153],"class_list":["post-91","post","type-post","status-publish","format-standard","hentry","category-general","tag-adr","tag-advancement","tag-arbitration","tag-indemnification"],"authors":[{"term_id":153,"user_id":108,"is_guest":0,"slug":"rlrenck","display_name":"Richard L. Renck","avatar_url":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-content\/uploads\/sites\/16\/2014\/08\/renckrichard-125x150.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts\/91","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/users\/108"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/comments?post=91"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts\/91\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/media?parent=91"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/categories?post=91"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/tags?post=91"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/ppma_author?post=91"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}