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Merritt-Chapman & Scott Corp. v. Wolfson

Delaware Superior Court · Civil Procedure

Civil ProcedureCorporate indemnificationSummary judgmentDelaware8 Del. C. § 145indemnificationmandatory indemnificationpartial indemnification

Facts

Wolfson, Gerbert, Kosow, and Staub were indicted on charges tied to a plan causing MCS to secretly purchase its own stock; the indictment included conspiracy, perjury, and false annual report counts. After initial convictions were reversed, later proceedings ended with a judgment of acquittal on one count, mistrials on some counts, dismissal of charges against Kosow and Staub, a nolo contendere plea by Wolfson to count five, and a guilty verdict against Gerbert on count three, with remaining charges dropped. Kosow had served as chairman and president of a wholly owned MCS subsidiary under an agreement making him subject to MCS control and direction. Wolfson and Gerbert also sought indemnification under an MCS bylaw, and MCS challenged Wolfson's attorney's fees and all claimants' requests for interest.

Issue

Whether the claimants were entitled to indemnification for criminal-defense expenses under 8 Del. C. § 145(c) or the MCS bylaw after mixed criminal outcomes, including acquittal, dismissal, mistrial, dropped charges, a nolo contendere plea, and a guilty verdict. The court also had to decide whether Kosow qualified as an employee or agent of MCS, whether Wolfson's attorney's fees were reasonably incurred, and whether interest could be awarded on reimbursable expenses.

Rule

Under 8 Del. C. § 145(c), indemnification is mandatory to the extent a corporate director, officer, employee, or agent has been successful on the merits or otherwise in defending any action or any claim, issue, or matter therein. In a criminal case, any result other than conviction is success, and the court may not go behind that result; indemnification may therefore be partial by count. A person prosecuted by reason of an employment or agency relationship with the corporation qualifies under the statute, and expenses actually and reasonably incurred include reasonable attorney's fees and interest necessary to make indemnification complete. But where an independent corporate bylaw withholds indemnification from officers or directors adjudged derelict in duty, a conviction, including judgment entered on a nolo contendere plea, establishes dereliction for the charged offense.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nora Benton, chief financial officer of Lakeview Transit Systems, was indicted in Chicago on four criminal counts arising from alleged misconduct in corporate reporting. She was acquitted on count one, the jury hung on counts two and three, and she was convicted on count four.

If Lakeview Transit Systems is subject to a statute identical to § 145(c) as construed by the court, what indemnification result is most likely?

Explanation. Under the majority’s reading of § 145(c), a claimant need not achieve complete exoneration. In a criminal case, any disposition other than conviction counts as being "successful on the merits or otherwise," and indemnification is available to the extent of success on any "claim, issue or matter." Because each count is treated as an independent criminal charge, Nora gets partial indemnification for the acquittal and hung-count matters, but not for the count of conviction. (Derived from Merritt-Chapman & Scott Corp. v. Wolfson (n.d.).)