Vice Chancellor Strine of the Delaware Court of Chancery has held that when a corporation is obligated by its bylaws and Section 145 of the Delaware General Corporation Law to advance fees and expenses to its officers until “the final disposition of such action, suit or proceeding,” the relevant “final disposition” is the final, non-appealable conclusion of the proceeding and not the conclusion of sentencing at the trial court level. Sun-Times Media Group, Inc. v. Black, No. 3518-VCS, 2008 WL 2933093 (Del.Ch. July 30, 2008).

The defendants were four former officers of Hollinger International Inc. (Hollinger), now doing business as Sun-Times Media Group, Inc. (Sun-Times). The Sun-Times’s Certificate of Incorporation provided directors and officers advancement and indemnification “to the fullest extent permitted by applicable law” and specifically provided for advancement of attorneys’ fees and expenses “incurred by a director or officer in defending or investigating any threatened or pending civil[,] criminal, administrative or investigative action, suit or proceeding . . . in advance of the final disposition of such action, suit or proceeding.”

After a four-month jury trial in the Northern District of Illinois, the defendants were sentenced to terms ranging from 78 months in prison to five years of probation with six months of home detention. The defendants appealed their convictions to the U.S. Court of Appeals for the Seventh Circuit. On June 25, 2008, the Seventh Circuit affirmed the convictions of the defendants on all counts. After the defendants were sentenced, the Sun-Times informed them that it would stop advancing fees related to their appeals and any post-conviction proceedings at the trial court level and brought the present suit for declaratory relief.

The Sun-Times argued that the “final disposition” of a criminal proceeding for purposes of the Certificate of Incorporation occurs at sentencing and that any appeal of that decision constitutes a new “proceeding.” According to the Sun-Times, an officer who appeals his conviction is not entitled to the advancement of fees or expenses for the new proceeding because he is no longer “defending” a suit as provided in the Certificate of Incorporation.

The court first explained that the core dispute in this case was “over an issue that is relevant to virtually all corporations, directors, and officers who are affected by the advancement and indemnification provisions of § 145 of the DGCL.” Although the dispute was cast in the terms of the specific language of the Sun-Times Certificate of Incorporation, it was effectively a dispute over the meaning of the term “final disposition” in DGCL § 145 because the language of the Certificate of Incorporation paralleled the language of the statute and expressly stated that advancement and indemnification were available “to the fullest extent permitted by applicable law.” “Reduced to its core, the question is whether advancement and ultimate indemnification rights turn on every provisional ruling . . . or whether they turn on only the final, non-appealable resolution of the underlying action, suit or proceeding.”

The court began by noting there was no case law providing a definitive interpretation of the term “final disposition” as used in DGCL § 145. The court noted that judges do not “labor under any delusion that their final order in a case is the final word on the disposition of that case. If an appeal is taken, the ‘final disposition’ depends on the results above, not just the outcome of the first trial-court go-around.” Similarly, the court noted that the drafters of the statute were not “ignorant of the complex administrative and legal actions, suits and proceedings relevant to corporate officials.” Thus, “it is counter-intuitive to think that they meant the term final disposition to only refer to the conclusion of the first stage of an administrative or judicial matter. . . .” The court concluded that, “[t]he most logical reading of the text is that advancement must be provided until the underlying action, suit, or proceeding is finally resolved or disposed of, in the sense that its outcome is not subject to further disturbance. Why? Because it is only at that point that the ultimate determination that the recipient either was or was not entitled to indemnification can be made.”

Thus, the court concluded that the term “final disposition” in DGCL § 145 means the final, non-appealable conclusion of a proceeding.