Rite Aid Must Indemnify Former Exec for Fees From Decades-Old Accounting Scandal

(CN) – The Delaware Chancery Court ruled that Rite Aid Corp. must pay the legal fees of its former chief counsel after the dust settled on an accounting fraud scandal that plagued the drugstore chain 20 years ago.

Former executive vice-president, chief legal counsel, and vice chairman of Rite Aid’s board, Franklin Brown, sought indemnification from Rite Aid after a scheme to inflate earnings occurred within the company in the late 1990’s, causing numerous federal lawsuits.

Brown was sued for criminal and civil liability and was convicted by jury in 2003 of conspiracy, witness tampering, and other charges. He was sentenced to 10 years in prison and ultimately served six years.

The ruling from Vice Chancellor Morgan T. Zurn, in granting summary judgment to Brown, determined that Brown is “undisputedly covered by both Rite Aid’s indemnification bylaw, the company’s corporate charter and Delaware law.

Rite Aid argued that Brown was not entitled to payment due to his convictions and the numerous unsuccessful motions he brought against the company thereafter until he prevailed by resuscitating a 2001 Bar Order that prevented the company from bringing any claims against “released parties” arising out of settled claims.

“The definition of released party included directors and officers, and so extended to Brown,” the ruling said. Brown should have invoked the Bar Order earlier, Rite Aid asserted, but Zurn disagreed.

“The statute, charter, and bylaws present different paths to the same place: mandatory indemnification,” Zurn wrote, explaining that a company officer or director who meets the requirements of the provisions has an “absolute right to indemnification.”  

“Plaintiffs who successfully enforce their indemnification rights in Delaware are entitled to fees-on-fees. And Rite Aid’s charter and bylaws provide for fees-on-fees. Brown has achieved full success as his right to indemnification and so will be entitled to fees-on-fees once the indemnified fees are finalized,” the ruling concluded.

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