Marino v. Patriot Rail Company LLC

Delaware Court of Chancery · Corporations

CorporationsAdvancementIndemnificationDGCL 145advancementindemnificationformer officersformer directors

Facts

Gary Marino served as the Company's Chairman, President, and CEO until June 18, 2012, when a stock sale closed and he resigned from all Company positions. The Company's charter stated that it would indemnify and advance expenses on behalf of its officers and directors to the fullest extent permitted by law. After a California action resulted in a substantial judgment against the Company and Grandparent, Sierra filed a post-judgment motion to add Marino as a judgment debtor, relying partly on Marino's alleged misconduct and litigation control while he was serving as the Company's senior officer and partly on post-resignation fund transfers and conduct. Marino demanded advancement for the fees incurred opposing that post-judgment motion, and the Company refused.

Issue

Whether a charter provision granting advancement to the Company's officers and directors to the fullest extent permitted by Delaware law continues to cover Marino after he ceased serving as an officer and director for claims based on actions he took while serving. Also, whether the California post-judgment motion was covered in whole or only in part because some allegations concerned post-resignation conduct.

Rule

When a corporation grants advancement rights to officers and directors to the fullest extent permitted by Delaware law, those rights vest through service, presumptively continue after the person ceases to serve under DGCL § 145(j), and cannot be retroactively eliminated or impaired for acts already undertaken unless the governing provision explicitly so provides under DGCL § 145(f). The continuing coverage is retrospective, not prospective: it protects former officers and directors only for proceedings brought by reason of actions taken in a covered corporate capacity during their period of service, not for actions taken after they left office.

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

Redwood Transit, Inc., a Delaware corporation based in Portland, Oregon, states in its charter that it will indemnify and advance expenses to its officers and directors "to the fullest extent permitted by law." Lena Ortiz served as CFO until 2021. In 2025, a civil action in Nevada names Lena based on accounting decisions she allegedly made while CFO, and the corporation refuses advancement because she is no longer serving.

Is Lena most likely entitled to advancement?

Explanation. The majority opinion holds that when a charter grants advancement to officers and directors to the fullest extent permitted by Delaware law, the protection continues after the person ceases serving under DGCL § 145(j), unless the original authorization expressly provided otherwise. The relevant question is whether the proceeding is brought by reason of actions taken in a covered capacity during service, not whether the person is still in office when suit is filed.