Monday, May 28, 2007

Nacchio Fights With Qwest Over Attorney's Fees

Since his conviction on nineteen counts of insider trading, former Qwest CEO Joseph Nacchio has now run into problems with his former employer over payment of his attorney's fees.  The company has asked Nacchio's attorneys to meet with its general counsel to discuss payment of his April legal bills, according to an AP story (here).  Nacchio has filed a lawsuit in Delaware Chancery Court seeking payment of the fees under a 2002 separation agreement when he left the company.  Qwest is a Delaware corporation, and that state's indemnification laws are quite liberal in allowing companies to reimburse officers and directors for their attorney's fees in litigation -- including criminal prosecutions -- brought for conduct on behalf of the corporation.  Delaware General Corporation Law Sec. 145(f) authorizes a company to agree to reimburse costs beyond what the law requires, subject to a requirement that the officer or director act in good faith:

The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office.

The "good faith" requirement has been read into this provision.  See Waltuch v. ContiCommodity Services, 88 F.3d 87 (2d Cir. 1996).

The cost of putting on a defense in a complex white collar crime case like Nacchio's runs into the millions of dollars, and it is not uncommon for lawyers to submit bills totaling over $25 million when all is said and done; former Enron CEO Jeff Skilling's defense reportedly cost almost $80 million.  Nacchio faces a July 27 sentencing date, and preparing for that proceeding will involve a substantial amount of time by his legal team in addition to putting together the appeal to the Tenth Circuit of the conviction.  Moreover, Nacchio still faces an SEC civil securities fraud action and shareholder lawsuits, so the meter on his attorney's fees will not stop any time soon.  The litigation over attorney's fees just adds to the melange of judicial proceedings Nacchio faces. (ph)

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