Day v. Diligence, Inc., C.A. No. 2020-0076-SG (Del. Ch. May 7, 2020) (Glasscock, V.C.)

In this letter opinion, the Delaware Court of Chancery denied an objection to a claim for advancement of attorney’s fees based on the fact that the fees were incurred prior to the date of an undertaking.

The defendant, Diligence, Inc. (“Diligence” or the “Company”), objected to a request for advancement by the plaintiff, a director and former officer of Diligence, relating to two invoices for attorney’s fees that were incurred prior to the plaintiff’s submission of an undertaking to the Company. Diligence asserted that the plaintiff may only receive advancement for those fees incurred after an undertaking has been provided because, prior to that date, the advancement right has not ripened.

In denying the defendant’s objection to the pre-undertaking invoices, the Court held that “[n]othing in the language of the statute, or the policy implicit therein, limits advancement to sums incurred post-undertaking . . . .” The Court observed that Section 145(e) of the Delaware General Corporation Law requires that the advancement payment itself must wait until an undertaking is received by the corporation but that the purpose of an undertaking is to permit payment of indemnifiable fees in advance of a final disposition by ensuring that the corporation has the legal ability to recoup the advance payment if the fees are ultimately determined not to be indemnifiable.

This decision clarifies the duty of a corporation to advance fees upon receipt of an undertaking.

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