Delaware Law Updates
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Sodano v. American Stock Exchange LLC, C.A. No. 3418-VCS (July 15, 2008) (Strine, V.C.)


In this action for advancement of attorneys’ fees and expenses, the Court of Chancery found that the phrase “ the fullest extent permitted by...the NASD’s organizational documents” in an agreement included a right to advancement because, in light of the facts of the case, the agreement referred to “indemnify” in the broad sense as one that encompasses both the concepts of ultimate indemnification and advancement. Sodano, a former NASD executive who served as the CEO and Chairman of the American Stock Exchange (“AMEX”) at the request of NASD, AMEX’s parent company, was involved in litigation arising from his role at AMEX and sought advancement from NASD and AMEX. NASD denied any right to advancement and AMEX asserted that NASD was jointly, rather than secondarily, liable. After NASD decided to sell AMEX, Sodano negotiated a termination of his employment that included a settlement agreement with NASD (the “Settlement Agreement”) with a general release of potential claims Sodano had against NASD (the “General Release”). The General Release provided for an indemnity in favor of Sodano for acts as an employee of NASD or AMEX prior to the closing of the sale of AMEX “to the fullest extent permitted by law and NASD’s organizational documents.” The General Release also carved out claims for attorneys’ fees for negotiating or enforcing the Settlement Agreement, but did not make any reference to attorneys’ fees related to the indemnity obligation. NASD contended that the indemnity language only provided a right of indemnification, whereas
Sodano argued that the phrase “to the fullest extent permitted by...NASD’s organizational documents” included a right of advancement as well . The NASD Certificate of Incorporation provided for advancement and indemnification. The primary issue was whether the term “indemnification” as used in the Settlement Agreement was intended by the parties to include advancement. The Court reviewed the contemporaneous events surrounding the negotiation of the Settlement Agreement that made it clear to the parties that Sodano would be implicated in litigation relating to his role at AMEX as well as the parties’ subjective intent in interpreting the contract under New York law. The Court also noted that the parties alternatively used the term “indemnification” both broadly to include advancement and narrowly in the NASD Certificate of Incorporation and in communications of the parties. The Court analyzed several Delaware cases where indemnity language was interpreted to include advancement and held that this was the interpretation that should apply to this case. In so holding, the Court noted that the use of “indemnification” in the title and language of the NASD Certificate of Incorporation where it included advancement supported the finding that the parties’ intent was to use the term broadly when indemnifying “to the fullest extent permitted by NASD organizational documents.” Turning to the issue of apportioning liability between AMEX and NASD, the Court relied on language in the NASD Certificate of Incorporation that provided that NASD’s indemnity and advancement obligations would be reduced by any amount such employee recovered for indemnity or advancement from any other entity to find that NASD was secondarily liable. In dismissing AMEX’s argument that the language was intended only to prevent “double dipping” by an employee, the Court reasoned that this language was only effective in hierarchical settings where the obligation to advance arose due to service at another entity. Therefore, according to the Court, it made sense that the language was intended to provide a backstop to give security to an employee secunded to a subsidiary. This interpretation is consistent with the parent subsidiary relationship such that the parent isolated the payment obligations in the subsidiary as long as the subsidiary had the financial wherewithal to pay.