Ohio State Bar Association succeeds in returning clarity to Ohio's Corporate Director Advancement Statute
Clients Ohio State Bar Association
The Ohio State Bar Association, represented by Jones Day as an amicus curiae, successfully petitioned the Supreme Court of Ohio to review, and then reverse, a decision from the Eleventh District that threatened directors’ right to advancement. Trumbull Industries, an Ohio corporation, and two of its directors sued Sam M. Miller, a Trumbull director, for allegedly breaching his fiduciary duties. Pursuant to R.C. 1701.13(E)(5)(a), which provides that "expenses . . . incurred by a director in defending" an action against the director by reason of the director's corporate service "shall be paid by the corporation as they are incurred" upon receipt of the director's undertaking (unless the corporation’s articles or regulations state section (E)(5)(a) does not apply), Sam M. requested advancement.
The trial court ordered Trumbull to advance Sam M.'s legal expenses, but the Eleventh District reversed. The appellate court found that advancement is mandatory only where a director is either a plaintiff in the action, or is sued for 'an act or omission' . . . on behalf of the corporation" but not for acts allegedly violating fiduciary duties owed to the corporation. The court of appeals also held that the statute creates an opt-in advancement regime, and therefore Trumbull's failure to opt-out did not trigger mandatory advancement. At the urging of the Ohio State Bar Association, represented by Jones Day, the Supreme Court of Ohio accepted review and reversed. The Court confirmed that advancement is mandatory where a director is sued for breach of fiduciary duty. A contrary conclusion, the Court found, "would make the advancement statute pointless." The Court also confirmed the opt-out structure of the statute, holding that "when a corporation has received from a director the undertaking described in R.C. 1701.13(E)(5)(a), the corporation is required to advance expenses unless the corporation's articles or regulations specifically state that R.C. 1701.13(E) does not apply."
The decision in Miller is critical for Ohio corporations. R.C. 1701.13(E)(5)(a)’s default rule of mandatory advancement was part of a 1986 emergency measure enacted to forestall the flight of Ohio corporations to states with more favorable director protections. The court of appeals' holding that advancement is not mandatory for directors sued for breach of fiduciary duty would have effectively nullified advancement, and its refusal to acknowledge the opt-out structure of Ohio's statute created significant uncertainty for Ohio corporations. With their success in the Supreme Court of Ohio, the Ohio State Bar Association and Jones Day brought clarity to director protections, ensuring Ohio corporations can continue to attract high-quality directors.
Miller v. Miller, 2012-Ohio-2928 (Ohio Supreme Court)