When Is an Officer Acting in an Official Capacity?

On May 30, Master in Chancery Abigail LeGrow issued a master’s report in Rizk v. TractManager, C.A. No. 9073-ML (Del. Ch. May 30, 2014), in which she addressed what she labeled as a Groundhog Day moment for the court: a Delaware corporation that resists advancing fees and expenses under “broad indemnification and advancement rights in bylaws or employment agreements” where the director or officer has been “accused of serious wrongdoing that allegedly injured the company.

” On this day, the company’s defense centered on its argument that the petitioner had not engaged in the alleged harmful acts in his official capacity as an officer or director of TractManager, but rather the acts were taken to further his personal interests, and thus his defense of litigation addressing that conduct was not subject to advancement. LeGrow disagreed, and the report discussed in detail the test the court applies when determining whether advancement is being sought for fees and expenses that are being incurred “ by reason of the fact” that the officer or director served in those capacities.