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Cohen v. Southbridge Park, Inc.

369 N.J. Super. 156, 848 A.2d 781 (App. Div. 2004)

CORPORATIONS; INDEMNIFICATION—New Jersey’s corporate indemnification statute is not intended to require corporations to indemnify outside legal counsel who only provide legal advice to the corporation without interacting with third parties on behalf of the corporation.

An attorney, who was independent outside counsel to a corporation, was sued for malpractice by the shareholders of the corporation. After the legal malpractice case was dismissed, the attorney sought indemnification from the corporation for his legal fees in defending the malpractice suit. The attorney claimed that he was the corporation’s corporate agent and that pursuant to N.J.S.A. 14A:3-5(1)(a) and 14A:3-5(4) he was entitled to indemnification. N.J.S.A. 14A:3-5(1)(a) defines a “corporate agent” as “any person who is or was a director, officer, employee or agent of the indemnifying corporation. N.J.S.A. 14:3-5(4) requires a corporation to indemnify a corporate agent against expenses if the agent is successful on the merits. The attorney claimed that he was an agent and, since he successfully had the malpractice case dismissed, he was entitled to indemnification. The lower court found, as a matter of law that the attorney, who advised the corporation on matters relating to the employment of corporate employees, was a corporate agent within the meaning of the statute. It rejected the corporation’s argument that the attorney was an independent contractor. On appeal, the Appellate Division reversed. The Court found that the indemnification statute was intended to protect individuals who “exercise binding managerial authority and discretion on behalf of the corporation in matters involving third parties”. It was not intended to provide indemnification to outside counsel who only provide legal advice to the corporation without interacting with third parties on behalf of the corporation. While the corporation had the authority to provide indemnification, it was not required to do so.


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