Squabbles among corporate or association boards can lead to the triggering of attorneys’ fees for board members suing their board, the New Jersey Supreme Court ruled Thursday. In this unanimous opinion, the court held that “first-party” lawsuits by board members against their organizations can fall under indemnity provisions traditionally meant to shield boards from stakeholder lawsuits. However, such provisions must clearly articulate the intent to protect a suing board member, as opposed to the typical application where indemnity clauses are designed to cover costs from third-party suits.
The court’s decision overturns the conclusion reached by the Appellate Division, which had previously found that attorneys’ fees are not to be awarded when the intent behind the contract language is ambiguous. This ruling introduces a significant interpretation of how indemnity provisions are applied in internal disputes within boards and could influence future legal strategies and contract formulations for corporations and associations moving forward.
Further details and analysis of the ruling can be found in the Bloomberg Law report.