Marino v. Patriot Rail Co. LLC

Delaware Court of Chancery · Corporations

CorporationsAdvancementIndemnificationDirectors and OfficersDGCL 145advancementindemnificationformer officers

Facts

Marino served as the Company's Chairman, President, and CEO until the Company was sold on June 18, 2012, at which time he resigned all positions. Sierra later filed a post-judgment motion in California seeking to add Marino as a judgment debtor based partly on his conduct while running the Company and partly on post-sale fund transfers and conduct after his resignation. The Company's charter provided that it would indemnify and advance expenses for officers and directors to the fullest extent permitted by law. Marino demanded advancement for defending the post-judgment motion, gave an undertaking, and the Company refused on the ground that he was no longer an officer or director and that the motion focused on post-resignation conduct.

Issue

Whether a corporation whose charter mandates advancement to officers and directors to the fullest extent permitted by Delaware law must continue to advance fees to a former officer and director for claims based on actions taken during his period of service. Also, whether Marino was entitled to advancement for all aspects of the California post-judgment motion or only the portions tied to his covered service with the Company.

Rule

When a corporation grants advancement rights to directors and officers to the fullest extent permitted by Delaware law, those rights vest through service and, under DGCL § 145(j), presumptively continue after the person ceases to serve unless the original authorization expressly provides otherwise. Under DGCL § 145(f), those rights cannot be retroactively eliminated or impaired after the act or omission giving rise to the proceeding unless the governing provision in effect at that time explicitly authorizes such elimination or impairment. But continuing coverage is retrospective only: it applies only to proceedings brought by reason of the person's service in a covered capacity and not to actions taken after the person stopped serving.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Granite Harbor Systems, a Delaware corporation based in Portland, Maine, states in its charter that it "shall indemnify and advance expenses to its officers and directors to the fullest extent permitted by law." Lena Ortiz served as CFO until 2021, resigned, and in 2024 was sued in Arizona for accounting decisions she allegedly made while CFO. She gave the required undertaking, but the company refused advancement because she is no longer an officer.

Is Lena most likely entitled to advancement?

Explanation. Under DGCL § 145(j), advancement rights provided to officers and directors continue after the person ceases to serve unless the original authorization says otherwise. Under § 145(f), those rights cannot be retroactively eliminated after the relevant acts unless the original provision expressly allowed that. A charter granting advancement to the fullest extent permitted by law therefore continues to protect a former officer for claims brought by reason of her service.