February 27, 2018 | Corporate Secretary

Why Companies May Have to Pay Ex-Directors' Legal Fees

2 min

"Why Companies May Have to Pay Ex-Directors' Legal Fees" article by Venable partners, Doug Mishkin, Chuck Morton, and Michael Schiffer, and associate, Sandy Schlesinger, was published in Corporate Secretary on February 27, 2018. Here is an excerpt:

For a company, suing a former director or officer for theft of trade secrets raises a series of thorny questions. Among these is whether the company has to pay the legal fees of the defendant. The answer may be a surprising one – as a result of competing corporate interests.

Every company wants to be well positioned to protect itself from theft of trade secrets by an officer, director or outside party. But companies must also compete to recruit and retain qualified officers and directors. To do so, they often assure officers and directors that they will not be at risk of personal liability for claims made against them in their corporate capacity, absent proven bad behavior.

A company's articles of incorporation, other organizational documents or contracts will often seek to offer this assurance by providing that an officer or director is entitled to mandatory advancement of expenses – including attorneys' fees – if sued for actions (or inactions) taken in his or her capacity as an officer or director, and/or indemnification of judgments, fines, expenses and other liabilities at the conclusion of such a lawsuit.

This relatively typical language may, in certain circumstances, apply even to a lawsuit brought by the very company obligated to advance the expenses.