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Pollan v. Genisys Reservation Systems, Inc.

97-2029 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)

CORPORATIONS; DIRECTORS; AGENTS; ATTORNEYS; INDEMNIFICATION—New Jersey corporate law allows the advancement of defense expenses to an employee, to be returned if the employee is not vindicated, and allows indemnification of certain professionals, such as attorneys and accountants, if necessary to effect the company’s corporate purposes. Joint representation of a company and its employees is proper in the absence of allegations of a conflict of interest as well as where there is a proper waiver.

A former employee sought an order invalidating resolutions of his former employer’s board of directors indemnifying individual directors, also defendants in the main action. He argued that five of the six voting directors were defendants to this suit and in their absence there would have been no quorum. He also contended that the board’s indemnification of individual defendants who were not affiliated with the company was improper under N.J.S. 14A:3-5. The underlying dispute was the employee’s claim that he was entitled to the benefit of certain shares that had been issued to him in connection with his former employer’s acquisition of the shares of another company. He contended that he gave sufficient consideration for those shares, while the employer argued that the principal consideration for those shares consisted of services that the employee was to render over his future course of employment, which he did not perform.

The Court refused to invalidate the board’s resolution. In doing so, it noted that the resolutions did not indemnify the company’s individual employees, but only provided for the payment of reasonable legal fees under N.J.S. 14A:3-5(6) which allows advancement of expenses in exchange for a promise to return those expenses if there is an ultimate determination that indemnity is not warranted. The indemnification of non-employees (which, in this case, consisted of lawyers, investors, and accountants) was found to be proper under N.J.S. 14A:3-1(p) which allows indemnification of such individuals because indemnification of professionals could be considered “necessary to effect the company’s corporate purposes” under the statute.

The former employee also attempted to remove the company’s attorney as counsel because it was representing both the corporate defendant and its corporate officers and sought to have a separate attorney appointed to represent the corporations involved. This motion was also denied, relying on Bell Atlantic Corporation v. Bolger, 2 F.3d 1304, 1316 (3rd Cir. 1993) which held joint representation to be proper when there are no allegations of self-dealing, stealing, fraud, intentional misconduct, or conflicts of interest. The Court found none of these activities to be present, and noted that even if there were a conflict of interest, the attorney had received a proper waiver pursuant to R.P.C. 1.13.


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