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CALIFORNIA CORPORATE & SECURITIES LAW

Court Rules Plaintiff Is Not Required To Advance Defendant’s Legal Expenses

Imagine how frustrated you would be if you sued someone and the defendant responded by demanding that you advance his legal expenses in defending your lawsuit.  The plaintiff in Allergia, Inc. v. Bouboulis, 2017 U.S. Dist. LEXIS 7759 (S.D. Cal. Jan. 19, 2017) found itself in just that situation.  U.S. District Judge Janis L. Sammartino, however, spared the plaintiff the vexation of having to fund both sides of its own lawsuit.

The plaintiff had sued the defendant for (1) declaratory judgment of patent application ownership and/or other patent and intellectual property rights; (2) breaches of fiduciary duty and/or implied contract; and (3) fraud.  The defendant filed a motion seeking advancement of his expenses pursuant to the plaintiff’s bylaws and Section 317 of the California Corporations Code.  Judge Sammartino agreed with the defendant’s argument that his right to indemnification (Section 317(c)) was conceptually and procedurally distinct form his right to advancement (Section 317(f)).  However, Judge Sammartino agreed with the plaintiff that the Defendant was not entitled to advancement of expenses because he was not sued by reason of the fact that he was an agent and/or officer of the plaintiff.  Although one might suppose that the plaintiff’s breach of fiduciary duty claims might have been brought by reason of the defendant’s position with the plaintiff, Judge Sammartino found that the allegations implicated the defendant’s personal motives and were not performed by the defendant in furtherance of his corporate functions.

 

 

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