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Directors are entitled to the Advancement of their Legal Fee

Arnold & Clifford LLP won a victory in the Tenth District Court of Appeals that impacts many Ohio companies and their directors. Represented by James E. Arnold and Tiffany Carwile, a director of an Ohio corporation convinced the Tenth District Court of Appeals that Ohio’s mandatory advancement statute (R.C. 1701.13(E)(5)(a)) for litigation expenses applies regardless of the capacity in which the director is sued. The court of appeals’ unanimous decision reversed the trial court’s denial of the director’s request for the advancement of attorney fees and expenses. The Tenth District’s decision can be read in its entirety here.

The director filed a motion for the advancement of his litigation expenses with the Franklin County Court of Common Pleas, which the corporation opposed, claiming that the statute did not apply because it was suing the director in his capacity as an officer, not as a director. The trial court denied the director’s motion, finding that R.C. 1701.13(E)(5)(a) only required the advancement of the director’s attorney fees and expenses when the director was sued in his capacity as a director.

On appeal, the Tenth District reversed holding that “nothing in the text of R.C. 1701.13(E)(5)(a) premises a corporation’s mandatory duty to advance expenses to a director on a requirement that the director’s act or omission be taken in the director’s official capacity as a director.”

The Tenth District’s decision is great news for Ohio’s directors and, at the same time, a teaching moment for corporate counsel. While companies, through their governing documents, may opt-out of advancement of attorney fees, simply deciding to sue a director in their capacity as an officer will not escape R.C. 1701.13(E)(5)(a)’s reach.