Federal Appellate Court Determines That “Officer” Is Not a Self-Effectuating Term in Corporate Bylaws, with Implications for Hedge Fund Manager Indemnification Provisions and D&O Insurance Policies

In connection with an ongoing dispute involving alleged trade secret theft, a federal appellate court recently construed the meaning of the term “officer” in the bylaws of a notable financial holding company.  See “How Can Hedge Fund Managers Protect Themselves Against Trade Secrets Claims?,” Hedge Fund Law Report, Vol. 7, No. 19 (May 16, 2014).  The bylaws provided for indemnification and advancement of attorney fees for officers of the company and certain of its subsidiaries.  See “Stanley Druckenmiller’s Counsel Provides a Tutorial for Negotiating Exculpation, Indemnification, Redemption, Withdrawal and Amendment Provisions in Hedge Fund Governing Documents,” Hedge Fund Law Report, Vol. 7, No. 5 (Feb. 6, 2014).  Thus, if the alleged trade secret thief was an “officer,” he would be entitled to indemnification and advancement of attorney fees, to the extent permitted by relevant law.  If he was not an officer, he – rather than his former employer – would bear the cost of litigation and remedies.  The appellate court’s opinion is notable in at least two respects, both discussed in this article.  See also “How Can Hedge Fund Managers ‘Manuscript’ D&O and E&O Insurance Policies to Broaden Coverage without Increasing Cost?,” Hedge Fund Law Report, Vol. 6, No. 33 (Aug. 22, 2013).

To read the full article

Continue reading your article with a HFLR subscription.