November 28, 2021

Volume XI, Number 332


If Director's Fiduciary Obligations Are Not Contractual, What About Rights To Indemnification?

Yesterday's post concerned, a recent ruling by Vice Chancellor Sam Glasscock in Lacey v. Mota-Velasco, C.A. No. 2019-0312-SG (Del. Ch. Feb. 11, 2021).  In finding that a director's duties are fiduciary, not contractual, the Vice Chancellor observed:

"While a corporate charter operates in some respects as part of a contractual arrangement among the stockholders and the corporation and its board, the entity and its directors are not contractually bound to one another by the charter—they are not counter-parties—and the legal compulsion for directors to comply with the charter arises as part of their fiduciary duties, and not in contract."

If a corporation and its directors are not counterparties to a contract embodied in the corporate charter, do directors, officers and other agents have any right to enforce indemnification provisions included in the corporate charter? 

It seems, and seemed, to me that a case can be made that the case can be made that indemnification provisions included in corporate charters could meet the definition of a contract, at least under California law.  This was an issue that I first raised over eight years ago.  See Are Charter Indemnification Provisions Contracts?

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 55

About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...