Business & Practice

Rite Aid Must Indemnify Ex-Chief Counsel Who Beat Its Lawsuit

May 24, 2019, 6:16 PM

Rite Aid Corp. must reimburse the legal expenses of a former top executive it sued over his role in a scandal to inflate the company’s earnings, for which he served six years in prison.

Delaware’s Chancery Court granted summary judgment May 24 to Franklin Brown, the former ex-chief counsel, board vice chairman, and executive vice president who sued Rite Aid for indemnification after the dismissal of its Pennsylvania state court lawsuit against him.

Vice Chancellor Morgan T. Zurn, writing for the court, said Brown had the right to indemnification under provisions of Delaware law, Rite Aid’s bylaws, and the company’s corporate charter. All three clauses “present different paths to the same place: mandatory indemnification” of any corporate officer who prevails on the merits in a lawsuit over his role with the company, Zurn said.

“The plaintiff is undisputedly a covered person who was embroiled in a covered proceeding,” she wrote. “Under the simple test for determining success, he prevailed.”

Rite Aid had argued that Brown shouldn’t be repaid because he went through several unsuccessful defenses before eventually citing a 2001 claims release signed by the company. He should have brought up the release earlier instead of spending years throwing good money after bad, Rite Aid said.

Zurn disagreed. Brown has a right to indemnification “regardless of his path to victory,” she wrote. “That he obtained this result based on only one technical argument presented after years of litigation does not diminish his right.”

Brown was represented by Abrams & Bayliss. Rite Aid was represented by Ballard Spahr LLP.

The case is Brown v. Rite Aid Corp., Del. Ch., No. 2017-0480, 5/24/19.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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