Officers and Directors
You’ve worked hard to help a business succeed, only to find yourself subject to litigation against the very company that you helped to guide. At KHF, we represent corporate officers and directors in lawsuits filed by third parties or by their own company or company’s shareholders. We represent executives, CEOs, officers, and directors of public and private companies, working with insurers on often complicated and sophisticated arrays of claims.
Representations range from small business executives to national corporation executives, including directors and officers that are subject to claims regarding business judgments that range from claims of breach of fiduciary duty to conflicts of interest.
When a corporate director or officer is sued by a third party for alleged misconduct carried out in his or her capacity as director/officer, the company generally indemnifies the director/officer by defending him or her against the lawsuit. The company’s duty of indemnification arises from both the law and governing corporate documents (e.g., articles of incorporation, bylaws, or employment agreement).
The practice of a company suing its officer or director happens frequently. In some cases, a shareholder brings a derivative lawsuit under the company’s name against the officer or director, requiring legal representation. Besides providing an indemnification provision for an officer or director against a third-party lawsuit, many states provide additional statutory provisions, including Pennsylvania and Delaware.
Under the Delaware General Corporation Law, although a company’s duty to indemnify a corporate officer or director from the company’s action against the person can be limited by its bylaws and the duty applies only when “the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation,” the company must indemnify the person if the court finds that “despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.”
In addition to indemnification obligations, a company could be required to advance legal expenses to its officer or director during the lawsuit it brought against the person.
Litigation between a corporation and its officer or director is common. Unlike in a derivative lawsuit where a corporation’s interest and that of the officer/director could be aligned, in a direct corporate action against its officer/director, the corporation’s interest and the person’s interest will likely be adversarial. Litigation like that is frequently unfair to officers or directors as the company has many advantages over the persons, including the financial wherewithal and access to evidence. Officers and directors will need as much protection as possible. At KHF, we have significant experience handling director and officer litigation in these matters. If you are an executive, CEO, officer, or director in need of legal counsel in a lawsuit against you by your company (alternatively, if you would like to bring a lawsuit against your company), the lawyers at KHF can help. Please contact us for more information.