Delaware companies should “tread carefully” in denying a present or former executive’s demand for advancement, because as reflected by the recent decision of Blankenship v. Alpha Appalachia Holdings, Inc., C.A. No. 10610-CB (Del. Ch. May 28, 2015), the Court of Chancery has commonly granted such executive his or her attorneys’ fees, or a portion thereof, in bringing an advancement claim before the Court.  While an advancement action is considered a “summary proceeding” and moves at a quicker pace than normal litigation, litigation fees are frequently not insubstantial.

In the recent Blankenship opinion, the Delaware Court of Chancery considered various defenses provided by a Delaware corporation to a claim for advancement by a former CEO of the company.  The Court rejected the corporation’s defenses to advancement based on purported conditions precedent in the underlying agreement, finding such asserted conditions (at most) ambiguous.

While the Court did not find Blankenship to be successful in obtaining 100% of the advancement fees that he seeks, the Court nonetheless granted the entirety of Plaintiff’s fees, including legal fees in commencing this action, given that Blankenship was “successful in whole” in obtaining the relief sought in the Complaint.

Delaware corporations and alternative entities with standard advancement clauses should therefore carefully consider to what extent is it worth fighting a clear claim to advancement, given the potential to be “on the hook” for the executive’s legal fees in bringing the advancement claim.

Carl D. Neff is a Partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.