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Stifel Financial Corp. v. Cochran6/13/2002
Submitted: April 17, 2002
Appeal from Court of Chancery. AFFIRMED IN PART. REVERSED and REMANDED IN PART.
In this appeal from the Court of Chancery, we once again address the scope of officer/director indemnification under Delaware law. The Court of Chancery ruled that the claim of a former corporate officer, who was also a director, for indemnification was not time barred and extended to the cost and expense of defending himself in criminal proceedings, but that the officer was not entitled to be indemnified for the bulk of the expense of an arbitration action resulting from the termination of his employment. The corporation appeals from the allowance of any indemnification while the officer/director cross-appeals from the Court of Chancery's refusal to award him the expense of bringing the indemnification action.
Upon review of the record, we conclude that the Court of Chancery correctly granted summary judgment in favor of the officer with respect to the statute of limitations defense. We further conclude that the trial court properly determined the scope of indemnification in the criminal proceeding and the arbitration matter. We disagree with the Court of Chancery's denial of "fees on fees" and accordingly reverse as to that portion of the cross-appeal.
I.
Robert Cochran ("Cochran"), the plaintiff in the proceeding in the Court of Chancery, had been an officer and director of Stifel, Nicolaus & Co., a wholly owned subsidiary of Stifel Financial Corporation ("Stifel"). Stifel is a mid-west regional investment banking carrier. Cochran, an investment banker, was in charge of Stifel Nicolaus' municipal bond underwriting department. In 1993, apparently prompted by a newspaper article, the Securities Exchange Commission ("SEC") began an investigation of Stifel Nicolaus' underwriting department to probe charges that Stifel Nicolaus had engaged in undue political influence and garnered improper fees in connection with certain municipal bond issues. The SEC investigation eventually centered on Cochran and resulted in the filing of a civil action against him alleging violations of federal securities laws. In the midst of this investigation, Stifel Nicolaus terminated Cochran for cause on August 23, 1994.
Following his termination, Cochran refused to repay excess compensation and the balance of a promissory note, as required by his employment agreement. To recover these amounts, Stifel Nicolaus commenced an arbitration action against Cochran. In the arbitration action, Stifel Nicolaus alleged that Cochran breached the express terms of his employment agreement by (1) refusing to repay excess compensation (the "Compensation Claim"); (2) failing to repay the amount of a promissory note that became due upon his termination for cause (the "Promissory Note Claim"); (3) breaching his fiduciary duties (the "Breach of Duty Claim"); and (4) violating the non-compete provision of his employment agreement (the "Non-Compete Claim"). Stifel Nicolaus withdrew the Non-Compete Claim at the arbitration hearing. The arbitrators ruled in favor of Stifel Nicolaus on the Compensation Claim and the Promissory Note Claim, and ordered Cochran to repay approximately $1.2 million. The arbitrators ruled in favor of Cochran on the Breach of Duty Claim, however. The arbitration award was confirmed by the United States District Court for the Eastern District of Missouri.
At the same time as the arbitration action, Cochran had been indicted by the U.S. Attorney in Oklahoma City on several counts of fraud in connection with the municipal bond dealings. Cochran was tried and convicted of these charges. Fortunately for Cochran, who faced an 87 month prison t
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