Advancement Of Attorney Fees Is Alive And Well In The Commercial Divison

The cost of litigating complex commercial cases can quickly become very significant for the parties involved in the process. Under most circumstances, each party will have to bear its own attorney fees and costs absent a contractual right (an attorney fees provision in a contract) or a statutory provision (anti-discrimination laws) that provides otherwise. However, in some cases, a party may not have to bear its own attorney fees and costs of litigation.

Statutory provisions of the New York Business Corporation Law (BCL) (§§722, 723, and 724) govern the advancement of attorney fees and costs to one party from another party under the right circumstances. In addition, a relatively recent decision in the New York Supreme Court, Nassau County Commercial Division, Schlossberg v. Schwartz, 43 Misc.3d 1224(A), 992 N.Y.S.2d 161 (Sup. Ct., Nassau Co., 2014) (J. DeStefano), ultimately granted a party's motion for advancement of legal fees and costs.

Advancement, Indemnification

Before delving into advancement rights, it is imperative to distinguish between advancement and a closely-related concept—indemnification. Indemnification for attorney fees and damages under the BCL is addressed at the conclusion of the case and necessarily involves the ultimate determination of whether a corporate officer and/or director "acted in good faith for a purpose which he reasonably believed to be in, or ... not opposed to, the best interests of the corporation ... ." BCL §§722, 723, and 724. As a result, the right to indemnification must await the outcome of the case.

Advancement, on the other hand, refers to payment of legal fees and expenses during the pendency of the action and does not depend on any ultimate determination of liability. See Kliger v. Drucker, No. 003304/11, 2011 N.Y. Misc. LEXIS 6704, *20, (Sup. Ct., Nassau Co. 2011). The right to advancement is not dependent on the ultimate outcome of an action. Id. The overall purpose of advancement is to "provide[] corporate officials with immediate interim relief from the personal out-of-pocket financial burden of paying the significant on-going expenses inevitably involved with investigations and legal proceedings." SEC v. FTC Capital Mkts., 09 Civ. 4755, 2010 U.S. Dist. LEXIS 65417, *14 (S.D.N.Y. June 29, 2010) (citing Homestore v. Tafeen, 888 A.2d 204, 213 (Del. 2005)).

BCL §§721-724

BCL §721 addresses the non-exclusivity of statutory provisions for indemnification and advancement of directors and/or officers. BCL §721 provides, in relevant part:

The indemnification...