Is There a 6th Amendment Right to Advancement of Legal Fees? In One Unique Case, A Court Says Yes.
A federal criminal case in the Northern District of California raises an unusual scenario involving the interplay between a defendant’s right to counsel of his choice under the Constitution and a corporate officer’s right to advancement of legal fees under Delaware law. Aubrey Shelton is a former senior VP of Delaware corporation RepairPal, Inc. On August 15, 2023, the United States government indicted Shelton on three counts of bank fraud, five counts of wire fraud, and four counts of tax evasion. The indictment alleged that Shelton embezzled millions of dollars from RepairPal over eight years. According to the indictment, Shelton used his control of the company’s payroll account to submit false information about his compensation to the payroll processor, inflating his salary and bonus and representing that he was entitled to receive “executive loans” and “reimbursements” for expenses he did not actually incur. In the criminal proceeding, Shelton sought to have his former employer advance legal fees for his defense, relying on a broad indemnification agreement he had signed with the company in 2020.
Readers of this blog likely are familiar with indemnification and advancement under Delaware law (see prior post here, for example). Indemnification is a statutory right that all directors and officers enjoy under Delaware law, as provided in Delaware General Corporation Law § 145. Delaware corporations generally must reimburse officers and directors for any expenses, judgments, fines, or settlements incurred in connection with legal proceedings related to service in their corporate capacities (subject to certain conditions and limitations). Advancement, on the other hand, is a discretionary right that Delaware corporations may (and often do) grant to their officers, directors, employees, and agents, either in the bylaws of the corporation or in individual agreements. Advancement is when the corporation pays the current or former director, officer, or employee’s legal fees and expenses for actions related to their corporate service as they are incurred, subject to a promise to repay if it is later determined that the individual is not entitled to indemnification. Delaware law strongly favors the enforcement of indemnification and advancement rights, which promote the recruitment and retention of qualified corporate managers and encourage them to act in the best interests of the corporation without fear of personal liability.
When RepairPal disputed its obligation to fund Shelton’s legal defense in his criminal proceeding, Shelton filed a lawsuit in the Delaware Court of Chancery to enforce the terms of the indemnification agreement with his former employer. Chancellor McCormick ruled largely in his favor, ordering RepairPal to advance legal fees Shelton incurred in connection with the bank and wire fraud charges, but not fees incurred in connection with the tax evasion charges. The Court found that the tax evasion charges were not related to Shelton’s service to the corporation.
Here is where things get interesting. Less than two months after the Chancellor’s order, RepairPal wrote to the federal prosecutors and complained that the advancement obligations were straining the company financially. It requested that the government dismiss the bank and wire fraud charges that were triggering Shelton’s advancement rights. The prosecution agreed to do so, hoping to relieve RepairPal from its payment obligations and thereby preserve funds for potential restitution to the victims of the alleged fraud.
This led, remarkably, to Shelton formally opposing the government’s motion to voluntarily dismiss certain criminal charges against him. Shelton argued that dismissing those claims (and thereby relieving RepairPal from its advancement obligations) would violate his 6th Amendment rights. The 6th Amendment guarantees a criminal defendant, among other things, the right to be represented by an otherwise qualified attorney whom the defendant can afford to hire. In October 2024, District Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California agreed with Shelton and denied the prosecutors’ motion to dismiss the charges. The Court found that the government’s admitted purpose in dismissing the charges was to deprive Shelton of his advancement rights, which provided him with assets to fund his defense. The Court held that permitting the government to proceed only on the remaining counts of tax evasion would unconstitutionally impair Shelton’s ability to retain his chosen attorney, who had been representing him since the indictment and who had relied on the advancement rights to pursue the case. Holding that dismissal would be contrary to the public interest and the 6th Amendment, the district court denied the prosecutors’ motion to dismiss the charges.
While indemnification of officers and directors of a Delaware corporation is statutorily mandated, countless Delaware decisions have held that advancement is a matter of discretion for the corporation, typically governed by the corporation’s bylaws or other agreements. But under the particular facts of this case, advancement was found to be a fundamental aspect of a corporate officer’s Constitutional rights.
The case proceeded and, on March 11, 2025, after an eight-day trial and jury deliberations, the jury was unable to reach a verdict on any of the criminal counts, and the Court declared a mistrial.
The case and its unique fact pattern present no shortage of interesting issues, including the odd dynamic of a defendant opposing the dismissal of certain criminal charges against him. The matter also illustrates courts’ deep reluctance to take any action that could curtail an indemnitee’s access to advancement, notwithstanding that its discretionary nature.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
