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Advancement Of Fees And Costs For Defense Of Counterclaims

Advancement of Fees and Costs for Defense of Counterclaims

Advancement of Fees and Costs for Defense of Counterclaims in Corporate Disputes and Principle Employee Litigation: Look at the Corporate Documents for Advancement and Indemnity Provisions.

Most of us are aware that Corporations and LLCs are permitted to advance legal fees and costs to corporate officials.  See K.S.A. §§17-6305 and 17-7670 (2007).  A separate proceeding may be available to enforce these provisions as well.  What we may not realize is the in the event the office or director is required to sue the company, and the company then files a counterclaim, that advancement may be available to cover the costs of defending the counterclaims.  Many shareholder agreements, by-laws, operating agreements and employment agreements are based upon the Delaware statutes that permit such provisions.  Broadly worded, these provisions can provide a source of funds to defend against counterclaims asserted by the company – but not normally for affirmative claims.  See Westar Energy Inc. v. Wittig 44 Kan.App2d 182, P.3d 151 (2010) and Paolino v. Mace Sec. Int’l, 985 A.2d 391 (Del Ch. 2009).  We were able to get the Court to recognize this right to advancement recently in the Johnson County, Kansas, District Court.

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