## Facts

- Citadel Holding Corporation, a Delaware savings and loan holding company, entered into a 1987 indemnification agreement with Alfred Roven, a director and significant stockholder.
- The agreement was negotiated to provide Roven protection beyond Citadel’s charter, bylaws, and any insurance, including protection for litigation arising from his service.
- After the relationship deteriorated, Citadel sued Roven in federal court alleging securities-law violations, including a claim under Exchange Act § 16(b) based on his trading in Citadel stock.
- Roven demanded advancement of defense costs under the indemnification agreement; Citadel refused on the ground that the agreement did not cover this type of suit.
- Roven filed a Delaware contract action seeking (1) advancement/reimbursement of litigation expenses and (2) prejudgment interest on amounts allegedly wrongfully withheld.
- The trial court held Citadel must advance reasonable expenses and entered a monetary award, upheld certain attorney–client privilege assertions affecting fee discovery, and denied prejudgment interest.
- Citadel appealed the advancement ruling and damages; Roven cross-appealed the denial of prejudgment interest.

## Issues

1. Whether the indemnification agreement required Citadel to advance/reimburse Roven’s defense expenses incurred in the federal securities action Citadel brought against him, including § 16(b) claims.
2. Whether the agreement’s advancement obligation was independent of any ultimate right or ability to indemnify Roven for liability in the federal action.
3. Whether Roven could invoke attorney–client privilege to block discovery needed to evaluate the reasonableness of the fees while still recovering those fees.
4. Whether Roven was entitled to prejudgment interest on amounts that should have been advanced once due under the contract.

## Decision

- The Delaware Supreme Court affirmed the determination that the indemnification agreement obligated Citadel to advance reasonable defense expenses for the federal action, including the § 16(b) claim.
- The Court held the contractual duty to advance expenses was independent of any later determination regarding indemnification.
- The Court reversed the trial court to the extent privilege rulings prevented discovery necessary to test the reasonableness of the claimed fees, and remanded for further proceedings on that issue.
- The Court reversed the denial of prejudgment interest and directed an award of prejudgment (and post-judgment) interest from the date the advances were due under the contract.
- Disposition: affirmed in part, reversed in part, and remanded.

## Legal Principles

- A corporation’s contractual commitment to advance defense expenses can be enforceable according to its terms even if ultimate indemnification may later be unavailable or limited.
- Advancement and indemnification are distinct obligations; advancement addresses interim funding of defense costs, while indemnification concerns final liability and may be determined later.
- Broad advancement language covering proceedings arising from a director’s service may include securities claims such as Exchange Act § 16(b) unless excluded by the agreement’s text.
- A claimant seeking fee reimbursement may not use attorney–client privilege to withhold information necessary to assess the reasonableness of the fees; courts must permit sufficient disclosure (with protective measures as needed) to evaluate reasonableness.
- In contract actions for sums wrongfully withheld, prejudgment interest is ordinarily awarded from the date payment was due, absent a contrary contractual provision.

## Conclusion

The court enforced a director’s contractual right to advancement for defense costs in a company-initiated federal securities suit, treated advancement as separate from ultimate indemnification, required adequate fee-related discovery notwithstanding privilege assertions, and held that prejudgment interest must be awarded from the date the advances became due.


Citadel Hldg. Corp. v. Roven, 603 A.2d 818 (Del. 1992)